Friday, December 16, 2011

Three years too late: Sec to finally sue Fannie and Freddie executives for fraud

During the Savings and Loan scandal of two plus decades ago, over 1100 bankers were arrested, indicted, and jailed for fraud.  In the 2008 credit crisis and subprime meltdown, nary a soul has been interrogated beyond a cursory hearing before the Congressional dog and pony shows.

So when the SEC in 2011 finally decides to step up and act like they are doing their fudiciary and regulatory duty in suing former CEO's of Fannie and Freddie for fraud and misleading investors on the subprime risk, it is simply a matter of three years too late, and one wonders if this is a simply a political move, rather than a judicial one.

Between December 6, 2006, and August 8, 2008, (the "Relevant Period"), Daniel H. Mudd ("Mudd"), Enrico Dallavecchia ("Dallavecchia") and Thomas A. Lund ("Lund") (collectively, "Defendants"), made or substantially assisted others in making materially false and misleading statements regarding Fannie Mae's exposure to subprime and Alt-A loans.
For example, in a February 2007 public filing, Fannie Mae described subprime loans as loans "made to borrowers with weaker credit histories" and reported that 0.2%, or approximately $4.8 billion, of its Single Family credit book of business as of December 31, 2006, consisted of subprime mortgage loans or structured Fannie Mae Mortgage Backed Securities ("MBS") backed by subprime mortgage loans.
Fannie Mae did not disclose to investors that in calculating the Company's reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by the Company towards borrowers with weaker credit histories, including Expanded Approval ("EA") loans. As ofDecember 31, 2006, the amount ofEA loans owned or securitized in the Company's single-family credit business was approximately $43.3 billion, yet none of these loans were included in the Company's disclosed subprime exposure. – Lawsuit filed

Mudd Fnm Fre Doc


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