The problems are piling up at Fannie Mae. On the heels of a federal regulator’s report detailing earnings manipulation and other accounting problems, the Justice Department has launched a probe into possible accounting fraud at the giant mortgage company, according to The Wall Street Journal.
The criminal investigation is in a preliminary stage, according to the paper. The company has no knowledge of the investigation and thus can’t comment on it, Fanny spokesperson Chuck Greener reportedly said.
Earlier this week, the company agreed to sweeping changes in an agreement generated by a critical assessment of Fannie’s accounting policies by the Office of Federal Housing Enterprise Oversight (OFHEO). Among other changes, the company agreed to increase its capital reserve, revamp its accounting, and tighten its internal controls.
In addition to the Justice Department’s investigation, the Securities and Exchange Commission is conducting its own informal inquiry, according to published reports.
Further, the House Financial Services Committee is gearing up for hearings concerning Fannie next week. Committee members voted Wednesday to empower its chairman, Rep. Michael Oxley, to issue subpoenas for testimony and documents, according to the Associated Press.
Those scheduled to testify include Fannie Mae chairman and chief executive Franklin Raines, CFO Timothy Howard, and OFHEO Director Armando Falcon.
To add insult to injury, the National Association of Home Builders, traditionally one of Fannie’s biggest supporters, said it was rethinking its tight relationship with the mortgage buyer, according to the Journal which cited a report in National Mortgage News.
Finally, Fitch Ratings has downgraded Fannie’s subordinated debt and preferred stock ratings to AA-minus from AA. Fitch also affirmed Fannie Mae’s AAA long-term senior debt rating and F1-plus short-term rating.