• 23
  • December
    2011

The SEC has filed civil fraud charges against the former CEOs of Fannie Mae and Freddie Mac, as well as against four other top executives of the mortgage companies. The SEC is accusing the executives of misleading them on what proportion of their portfolio was made up of subprime loans. The SEC says that the executives acknowledged a much lower percentage than was the reality.

According to the Associated Press, the SEC claims that Fannie's actual holdings of guaranteed subprime loans at the time the housing bubble burst was about 11 percent, whereas Fannie said it was 0.2 percent. Later in 2007, the CEO of Fannie said that it was less than two percent, and still later less than 2.5 percent.

Freddie only admitted to $2 billion to $6 billion worth of subprime loans in its portfolio when the number was closer to $141 billion. The SEC sued because it says these misstatements amounted to fraud.

The executives counter that the government knew during the financial crises how much the companies' portfolios were made up of subprime loans. The government seized control of the two companies before they collapsed in September 2008. The Federal Housing Finance Administration says that the companies could eventually cost taxpayers $259 billion.

The executives say that they are looking forward to facing a court of law that is objective and impartial because they believe they are facing these charges due to politics.

Source: MPR, "SEC charges ex-Fannie, Freddie CEOs with fraud," Derek Kravitz, Associated Press, Dec. 16, 2011