Fannie, Freddie execs next targets for SEC
Good news of aggressive enforcement action by the SEC, as reported by Associated Press:
WASHINGTON (AP) – The Securities and Exchange Commission has brought civil fraud charges against six former top executives at Fannie Mae and Freddie Mac, saying they misled the government and taxpayers about risky subprime mortgages the mortgage giants held during the housing bust.
Those charged include the agencies’ two former CEOs, Fannie’s Daniel Mudd and Freddie’s Richard Syron. They are the highest-profile individuals to be charged in connection with the 2008 financial crisis….
According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books. The SEC says that Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit.
Freddie said about 11% of its single-family loans were subprime in 2007. The SEC says it was closer to about 18%.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC’s enforcement director. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk.”
Investors had every reason to believe that Fannie and Freddie executives were telling them the truth about the financial health of the two companies, which eventually were forced into bankruptcy with investors getting wiped out. However, the SEC court filings, available here, suggest that the agency has pretty strong evidence that they did not tell the truth, and in fact were actively deceptive in order to keep the stock prices, and their own compensation, artificially high.
The goal of the civil fraud charges is to force the six executives to surrender bonuses and stock options they received in that time frame and to pay penalties on top of those returned profits. Syron’s compensation, for example, “grew from approximately $14.7 million in 2006 to $18.3 million in 2007,” according to the SEC filing.
Despite the glee it inspires among conservatives, the case offers no evidence that Fannie and Freddie played a major role in causing the subsequent financial meltdown. To the contrary, the story told in the SEC filings confirms the narrative laid out in previous independent investigations by the Federal Reserve and the Financial Crisis Inquiry Commission: The two “government-sponsored enterprises,” or GSEs, moved into the subprime market late in the game, and did so because they were losing market share to more aggressive private subprime mortgage companies. They allowed themselves to get sucked into the bubble, and if the SEC is correct they lied about it, but they did not cause the bubble in the first place.
For example, in its discussion of Freddie Mac’s role, the SEC writes:
“By 2005, the Freddie Mac and Fannie Mae combined share of the market for mortgage securitizations had fallen to approximately 42 percent from a high of nearly 60 percent in 2000. Within that shrinking GSE share of the market, Freddie Mac also had been steadily losing market share to Fannie Mae. Freddie Mac responded to this loss of market share by broadening its credit risk parameters to purchase and guarantee increasingly risky mortgages in its Single Family guarantee portfolio between approximately 2004 and 2007.”
In a similar case settled earlier, the SEC filed civil fraud charges against Angelo Mozilo, the former CEO and founder of Countrywide Financial. Mozilo paid $22.5 million to settle the case and forfeited another $45 million he was to otherwise receive.
Tell us what you think about the site
Customer Care »
Vacation stops, manage subscriptions and more
AJC Services
Sections
Other Editions
Visitor Agreement | Privacy Statement
© 2013 The Atlanta Journal-Constitution
116 comments Add your comment
Common Sense isn't very Common
December 16th, 2011
4:11 pm
Maybe Freddie and Fannie should sue Newt to get some of the funds back that they gave him. If they say he was a lobbyist and have the documentation to prove it, but he says he never did lobby for them they might have a case.
What a putz he is. If he is elected he might be the only president sued for divorce while in the WH.
Doggone/GA
December 16th, 2011
4:18 pm
“Why put the money back into the General Fund?”
Because that’s where the money comes from to fund them in the first place. There really aren’t very many agencies that had dedicated budgets. If you want to tie enforcement to funding, then they would be “borrowing” their funding from the General Fund and the fines they get would go to pay it back. Of course, it could be written that anything over goes to the agency – which means they wouldn’t have to “borrow” so much in the future.
Doggone/GA
December 16th, 2011
4:19 pm
Gotta run, be back later
Common Sense isn't very Common
December 16th, 2011
4:19 pm
Doggone – now that’s something that might work.
(ir)Rational
December 16th, 2011
4:21 pm
Mary Elizabeth – If my views are shared by a majority of my peers, or even a large minority, that gives me hope. You seem to forget this nation was built by individualists who valued personal liberty and freedom above all else. I haven’t. I didn’t know anything about Reagan when I was growing up, I was 3 when he left office, so whether you want to think it or not, my views weren’t shaped by his. My views weren’t shaped in that nature by my parents either. I gained my views through my experiences and by reading and by thinking. I won’t apologize for not believing in the “common good” or anything similar to that. I provide for myself and my family first. Anything I have above what I need to survive, I may use to help others. But it is my prerogative to do so if I choose. Not yours or anyone else’s to try and make me feel guilty or think that I’m wrong in thinking the way I do. You hold your views, I hold mine, and I don’t ever think we’ll find out who is “right” as there will always be people holding different views from one another. That’s what makes the world go round.
(ir)Rational
December 16th, 2011
4:22 pm
Oh, and Mary Elizabeth, my “selfishness” and “greed” allow me to provide for my family where I don’t have to ask for help from others to survive.
Brosephus
December 16th, 2011
4:23 pm
Doggone
Ok, I understand a bit better. That’s what I was meaning, but I just didn’t state it right. I wouldn’t mess with budgets. I would allow the agencies to keep fines and penalties as well as their budgets. That would leave them with a cushion they could borrow from for spikes in costs due to incidents that arise, and it wouldn’t affect the general budget at all.
scott
December 16th, 2011
4:36 pm
And you guys say Michelle Bachman is Batsh!t crazy!!! Pelosi actually says with a straight face that extending unemployment benefits will create 600,000 new jobs!!! Well, let’s see. We extended last year this time, right? Where is the 600,000 new jobs from that extension. How about the 600,000 jobs from a previous one? Man, first she says that each dollar spent on food stamps, the economy grows an extra $1.79. How does that make sense? Using her rationale, we should just pay everybody unemployment benefits and give everybody foodstamps. Wait a minute……..Isn’t that a Democrat platform? hmmmm………..
Common Sense isn't very Common
December 16th, 2011
4:38 pm
and you could fund the Secret Service the same way. Thye get to keep all the counterfeit money they confiscate as their operating budget
Common Sense isn't very Common
December 16th, 2011
4:46 pm
scott – while I agree that creating jobs from UI benefit extensions might seem a gray area. How many jobs were maintained because of it?
Money from UI goes directly back into the economy for housing, utilities, gasoline, food, etc. thereby saving jobs in this rocky economy.
Mary Elizabeth
December 16th, 2011
5:08 pm
(ir)Rational @ 4:21 and 4:22
First, let me clear up, for you, that I never said that you were “selfish” or that you had “greed” and, in fact, I was very careful to separate my comments into two paragraphs. The second paragraph, from which you extracted those two words, started with the phrase, “Aside from this particular blogger. . .”
Second, our founders were not all of the same mind, and the fact that you perceive of them as all of the same mind does not show an in depth understanding of their thinking. John Adams and Alexander Hamilton were more in favor of a centralized government, even though, in that day, they were thought of as conservatives. Thomas Jefferson and James Madison were proponents of individual liberties, and that is why Jefferson supported state’s rights; yet he was thought of as a progressive or liberal in his day. George Washington could see both perspectives, balanced in proportion to one another, and Washington often had to manage the great divide between Hamilton and Jefferson – both personally and ideologically. Jefferson was Washington’s Secretary of State and Hamilton was his Secretary of the Treasury. Eventually, Jefferson had to resign that position because the tension between himself and Hamilton was so great. Later, he came back as Adams VP and as third President, of course. I can see elements of worth in all of their positions. And yes, they all believed in individual liberties, hence our Bill of Rights written by Jefferson, which I strongly believe in, also. Yet, our nation is an evolving one, and FDR, JFK, and LBJ created policies whereby we could work together to enhance the common good for all while keeping our individual liberties.
You are unaware if you do not recognize that those right wing forces of power in our nation, which began under President Reagan, have continued for about thirty years to shape our national landscape which today has culminated in the great gap of the wealth and power of the few against the resources of the many. (Jefferson warned against this centralized wealth/power in the hands of the few because this would endanger our nation’s original tenets. Neither you nor I will have much liberty or freedom if corporate power is directly linked to governmental power, as we have seen happen through the the Koch Brothers and others of their ilk wield since the 1980s. See ALEC.
In no way, did I imply that you had studied Reagan, or even knew of his policies in any detail, or those political forces that put him and the Bushes into power. However, as is true with any generation, you are influenced by those forces of your time, nevertheless, even without directly realizing how or why you are influenced. Perhaps age will help you understand how this works in fuller detail. My father and mother were of the Depression and World War II years, and those years effected their outlook and worldview. My generation was of the Vietnam and Watergate era, and we were influenced by those forces.
Many of your generation, and younger, are now looking more toward public service, as in a renewed interest in Peace Corps service has demonstrated. here does not have to be a split between self-interest and public service. I worked for 42 years, part of which time my husband and I put our child through college so that she could be self-sufficient, but we also taught her to understand how all are interconnected. I simply think some of your generation have not been exposed to that balance because of the years in which you have matured. And I believe that that lack of balance could be destructive to the overall tenets of our nation, which are among others that all “are created equal” and that our government must be “of, by and, for” the people themselves, and not by the corporate money-valued barons of our day who also wield much political power through their money. If we do not see this, we are failing to recognize how we could lose that personal liberty and freedom that you and I, both, so value.
Jay
December 16th, 2011
5:33 pm
Don’t know if you folks had seen this, but it seems Rick Perry has retired from public service.
Well, kinda. It’s a ploy so he can double-dip on the taxpayer … http://www.texastribune.org/texas-politics/2012-presidential-election/perry-retires-boost-pension-pay/
Common Sense isn't very Common
December 16th, 2011
5:40 pm
Jay – Perry seems kinda like the Newtster just another scum sucking slimeball politician.
I had to say it that way to avoid moderation.
I can’t wait for the books that Newt’s ex’s get to write about him.
Perry is another texass two stepper.
Mary Elizabeth
December 16th, 2011
5:47 pm
Post Script to (ir)Rational -
My intent in addressing your thoughts today was not to make you feel guilty for your point-of-view (as you had mentioned), but to share, from my personal experience, another view that was more dominant on the American political landscape from the mid-1940s until 1980 than has been present since1980 until the present day.
Also, I believe that this nation – and this world – are evolving in the 21st century into a more vital egalitarian consciousness, which complements our nation’s original documents, i.e. The Declaration of Independence and The U.S. Constitution. If I am correct in perceiving this, then recognizing the value of the “common good,” as well as continuing to ensure individual liberties and freedoms, will be more in harmony with that emerging egalitarian consciousness than will be valuing inordinate self-interest, alone.
Mary Elizabeth
December 16th, 2011
6:12 pm
From the Perry article, linked above, which describes Rick Perry’s securing his own retirement from government funds:
“I do advocate totally rethinking the safety net, personal security programs completely,” Perry said in a November 2010 interview. “Why is the government collecting your tax money for retirement and health care programs? That’s not a stated constitutional role.”
————————————————
Another example of today’s callous, and often conservative career, politician who bows to the ideology of those who have greater power and wealth than he. Simply another example of the “I got mine; I couldn’t care less about you” worldview. Not a worldview for America to be proud of. The world expects more from America, and rightly so.
Sid
December 19th, 2011
8:21 am
I know this is an “old” topic at this point but now this is starting to make a little more sense – there are major ties to Newt! don’t get me wrong – if he’s connected he should be prosecuted (not just sued) but it’s awfully convenient that one of the few (arguably only) SEC actions of any significance just happens to implicate by extension the president’s likely challenger (du jour). anyone worried about the SEC doing its job being a sign of the apocalypse can go about their business – this is likely just politics…