Criminal inquiry into US loan firm

The justice department has opened a criminal investigation into the growing accounting scandal at Fannie Mae, the huge United States government-sponsored mortgage lender.

The inquiry comes a week after the company's regulator published a report into Fannie Mae, which said the mortgage business might have manipulated its books to meet Wall Street earnings targets. It alleged that accounting shenanigans helped senior executives at the company to bank multimillion-dollar bonuses.

Fannie Mae and a smaller enterprise, Freddie Mac, own or guarantee almost half of the $7.8 trillion residential mortgage debt in the US. Neither lends directly to consumers. They buy home mortgages from lenders, holding some in their own portfolio and repackaging others and selling them on as securities. They are both public companies but operate under public charter.

Fannie Mae and Freddie Mac's regulator, the office of federal housing enterprise oversight, last week handed the 211-page report to the corporate fraud task force, set up in the wake of the collapse of Enron. Yesterday, shares in Fannie Mae fell 4.7% in mid-day trade to a one-year low.

Senior executives from the company are due to appear before the congressional financial services committee next week to answer questions about the accounting issues. Chairman and chief executive Franklin Raines and chief financial officer Timothy Howard are expected to testify, as is Roger Barnes the former Fannie Mae accountant turned whistleblower.

A committee member, House Republican Richard Baker from Louisiana, said the company had been too protective of its senior executives and called on the directors to oust Mr Raines and Mr Howard.

The regulators singled out Mr Howard for blame in the alleged accounting mismanagement, saying he "failed to provide adequate oversight".

In one instance cited in the report, in 1998, accounting for $200m in costs was put off to a future reporting period so that executives could receive their full bonuses.