Fannie Mae will not face criminal prosecution for $10.8 billion in accounting errors.

The US Attorney for the District of Columbia told Fannie Mae that it won't file charges after a two-year federal investigation, said spokesman Channing Phillips.

"We advised them that we completed the investigation with respect to the company," said Phillips.

The end of the inquiry into the accounting errors reduces the threat of fines and lawsuits related to the manipulated earnings, first investigated in 2004.

The investigation led to the elimination of several top executives, including Chairman and Chief Executive Franklin Raines, and led to allegations of fraud.

Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight, and the Securities and Exchange Commission fined Fannie Mae $400 million in May and restricted the growth of its mortgage portfolio.

Former executives could stil face criminal charges. The SEC is considering civil charges against individuals. Chief Executive Daniel Mudd said that the accounting mistakes made by former executives have been found.

Fannie Mae intends to complete a restatement of earnings from 2001 until mid-2004 this year.

"We will continue to work closely and cooperatively with our regulators," Mudd said in a statement.

Fannie Mae guarantees about 20% of the $8.5 trillion residential mortgage market.

Freddie Mac, Fannie's cousin, disclosed $5 billion in accounting mistakes in 2003. Both Fannie and Freddie were created to increase money flow for home loans by buying mortgages and reselling them as securities. The firms make money on fees charged to lenders for guaranteeing loans. They also hold mortgage securities in their investment portfolios.