On Friday, the Securities and Exchange Commission brought civil fraud charges against six former executives of Fannie Mae and Freddie Mac. The complaint charges that the executives knowingly misled the public concerning the extent of subprime and Alt-A (a step above subprime) mortgages that they held.
In one case,
Freddie told investors in 2006 that it held between $2 billion and $6 billion of subprime mortgages on its books. The SEC says its holdings were actually closer to $141 billion, or 10 percent of its portfolio in 2006, and $244 billion, or 14 percent, by 2008.
Because this is a civil, not criminal case, those charged face only civil penalties, “disgourgement of ill gotten gains”, and prohibitions from serving on boards or as executives of publicly traded companies.
You are probably wondering why criminal charges were not brought, ala Enron. The answer is simple…perhaps.
Even proving a civil fraud,
…could be complicated by the fact that there weren’t widely accepted definitions about what constituted a subprime or so-called Alt-A mortgage…they seem to turn on whether Fannie and Freddie should have included broader definitions of those loans…
Amazing…the taxpayers have had to fork over $151 billion (and still counting) to bail out Fannie and Freddie, and investors lost countless of millions because there is no simple definition of “subprime”. By whatever name you give them, certainly these executives knew their companies took on thousands of mortgages from borrowers who had little or no chance of ever repaying them. They knew that many borrowers had put little if anything down when buying the home. They knew that many borrowers had very poor credit ratings.
In my humble opinion, failure to disclose that, regardless of the specific word used to describe the situation, rises to the level of criminal fraud.
Or, is this yet another attempt by the federal government to absolve the federal government of any responsibility for the financial chaos that is still being felt?