FBI LAUNCHES PROBE OF FANNIE, FREDDIE

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FBI LAUNCHES PROBE OF FANNIE, FREDDIE

Former housing execs face grilling as SEC sues over risky mortgages

By Andrew Strickler and Josh Bernstein Saturday, December 17, 2011

Federal investigators want to know whether executives at mortgage finance giants Fannie Mae and Freddie Mac misled investors and the public about risky mortgages in the lead-up to the 2008 financial crisis.

High-ranking sources with the Department of Justice told The Daily that the FBI and other federal authorities have launched investigations into the matter. The development comes as the Securities and Exchange Commission filed suit yesterday against six former top executives at Fannie and Freddie.

The suits represent the most aggressive moves to date by federal regulators against financial executives at the heart of the housing market meltdown.

The civil suits claim execs at Fannie and Freddie — both now under federal control and propped up by $169 billion in taxpayer money — deliberately downplayed the danger and the volume of subprime mortgage holdings in the years leading up to the credit crisis.

The companies now have limited protection from further legal challenges under a special agreement with the SEC, but that deal leaves open the possibility of future criminal charges.

The 59-page complaint against three former Fannie Mae executives — onetime CEO Daniel Mudd, Chief Risk Officer Enrico Dallavecchia, and former executive vice president Thomas Lund — alleges mortgage loans the company described as “made to borrowers with weaker credit histories” were less than one-tenth of the true numbers.

Behind the scenes, the government-sponsored companies painted a different picture, the SEC says, and acknowledged high-risk loans made up a far larger percentage of the businesses.

The timing of the executives’ alleged statements in media interviews, in SEC filings and in calls to investors — all made between 2006 and 2008 — is a critical component of the case because they came even as major cracks spread through financial markets in 2008.

“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 risks on the company’s books,” said Robert Khuzami, director of the SEC’s Enforcement Division.

The SEC filed a separate suit yesterday in the same New York City federal court against three onetime Freddie Mac executives — former CEO Richard Syron, former executive vice president Patricia Cook, and former executive vice president Donald Bisenius.

That suit claims the executives underreported the percentage of high-risk loans in one of its portfolios, while saying publicly that the business had “basically no subprime exposure.”

But unbeknown to investors, by the end of 2006, Freddie’s so-called “Single Family” business was exposed to $141 billion in loans the company called “subprime” or “subprime like,” according to the SEC. The number ballooned to $244 billion by June 2008.

The misleading disclosures were made as the company was trying to increase its market share “through increased purchases of subprime” and other high-risk loans, giving investors “false comfort,” the agency said.

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Khuzami said.

Current executives at Fannie and Freddie signed non-prosecution agreements with the SEC in which they accepted responsibility — but not liability — for its conduct and agreed not to dispute the lawsuits. The companies will not pay any fines.

The agreement is limited to allegations in the current lawsuits, and does not protect the former executives or others from being the target of prosecution from other agencies. The suits seek financial penalties against all six executives.

Mudd said yesterday, “The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice.”

After the government took over the companies in 2008, Mudd moved on to his current position as chief executive of private equity giant Fortress Investment Group. Syron is now a director for biotech company Genzyme Corp. The SEC seeks to bar all the defendants from serving as directors of public companies.

Syron’s attorney, Thomas Green, called the case “without merit” and argued that the definition of the term subprime had “no uniform definition in the market.”

Lund’s attorney said yesterday that his client “did not mislead anyone.”

“During a period of unprecedented disruption in the housing market, nobody worked more diligently or honestly to serve the best interests of both investors and homeowners,” attorney Michael Levy said in a statement.

Lawyers for other executives named in the suits did not respond to requests for comment.

Andrew.Strickler@thedaily.com
Josh.Bernstein@thedaily.com

 

15 Responses

  1. Martha Raysik

    Much that FBI and others know.

    My question — where are the journalists??? What are they doing??? They do not want the real story — and why not???

  2. @E.Tolle
    I would LOVE to go “see them in person”—how does one do that???
    Without getting arrested???

  3. Lets get to the core of the fraud and meltdown crisis. BOA, Wells Fargo, etc. Fannie Mae was involved in my case but BOA put the fraud in motion. I get so sick of the banks getting away with what they have done. Bill Black come back and investigate the banks. No one else will touch them.

  4. The FBI KNOWS that First American SWITCHED LOT NUMBERS on me in a closing on a new home, and then SWITCHED THE LOAN NUMBERS and it all being swept under the rug???

    They indict the person I CLAIM DID THIS “Donna K. Demello” on Eighty other loan frauds, and do not believe ME, in that I claim she did this to me?

    This is OUR country?

  5. Think about it….the top five or six behemoth banks who we know are ruling the entire planet, who also created MERS, all own percentage shares in MERS. That explains their total indifference as to who forecloses on this or that note, as it’s all profit anyway. That way, it wouldn’t matter if bank A foreclosed on a million dollar house, while bank C did a thousand dollar one. It’s all one huge pie, and we’re all ingredients. Money for free.

    MERS must go. It’s them or us. Don’t call your AG. Don’t write your Congressman.

    GO SEE THEM IN PERSON – AND DEMAND THE END OF MERS – AND DEMAND THE PROSECUTIONS OF FINANCIAL CRIMES – …………………………………………NOW!

    If they don’t agree with you, tell them that you will work tirelessly to effectuate their demise in “public service”, and that you will see to it that when they leave office, they will be unemployable, their kids will be shunned at school, and that they are eventually going to be foreclosed upon. Give them your personal guarantee on all that. Oh, and wish them a Merry Christmas.

  6. Fatastic interview from Atty Shawn Newman on “Why nobody can actually foreclose on you” and plenty of advice for foreclosure defense attorney on stopping plaintiff’s attorneys right in their tracks.

    http://mandelman.ml-implode.com/2011/12/foreclosure-fraud-north-by-northwest-with-attorney-shawn-newman-a-mandelman-matters-podcast/

    The guy goes for the jugular and he does it well. Efective, efficient and proactive. Best hour-long interview you’ll ever hear.

  7. the toothless old woman = sec ??this sec?
    haha so what..
    my remark was not intended to be sexist

  8. hman,

    I have some info for you—email me: cariemac9@gmail.com

  9. I have a couple questions I’d like to get some insight on.

    What about suing the lender on the DOT who is defunct. Chances are nobody would show up on behalf of the lender.

    In AZ the default process takes two steps: (1) clerk automatically enters default; 10 days pass for the defense to respond and if not, (2) judge can enter final default judgment.

    So if you get the default recorded prior to any assignments might you be in a good position? Up until the recent Vasquez v Saxon decession by the AZ Supreme Court I thought this was a great angle.

    However, the court reasoned “The court examined the statue governing trustee’s sales, A.R.S. 33-808, and noted that it does not impose any requirement to record an assignment before the trustee’s sale is noticed. the absence of such a requirement is not surprising, as the purpose of AZ’s recording statutes is to protect property interest against claims of subsequent purchasers for value, not to “shield the original obligor on a DOT from trustee’s sale. The finding such a requirement would be inconsistent with the law that unrecorded instuments, as between the parties and their heirs…shall be valid and binding,” irrespective of whether assignments are recorded. See A.R.S. 33-412 (B) AZ law also provides that the transfer of a note operates to transfer automatically the DOT securing its performance, see A.R.S. 33-817, & so AZ law requires no separate documentation of the assignment at all, much less a recorded assignment.”

    It goes onto even suggest that lenders “Lenders and Trustees Cease the practice of recording assignments, thus depriving borrowers the opportunity to use these perceived discrepancies as a basis to block or unwind a valid & lawful trustee sales”

    After I get the default I was planning on getting a title search/or an opinon of title but I think none of it would even matter anymore.

    If anyone has any thoughts please share Sorry for such a long post. I have already requested to see the original note however this has seemed to be unfruitful in AZ too.

    I think if I lose I’m going to move to Nevada or NY. AZ needs to get it’s act together!

  10. ALL THIS “STUFF’ GOING ON—AND YET NO MORATORIUM ON FORECLOSURES. PATHETIC.

  11. Actually, this is really good: individuals have been named as co-defendants. Isn’t that what we’ve been asking for since the beginning? The heads?

    I’m waiting to see all the previous and current CEOs of all the big players being individually and jointly named in large criminal and civil actions.

    Question of time and patience.

  12. Why did Fannie need a $1.6 million history class from Newt…?

    To see how they could avoid and circumvent the laws? I mean, let’s face it: Newt is a confirmed crook, he was under investigation for breaches of ethics (probably the least of his crimes…). anytime his mouth is open a lie comes out… And Fannie needed a history class from him?

  13. Yawn… Another day, another “neither admits nor denies” settlement for pennies on the dollar that extinguishes legitimate efforts to uncover wrongdoing and punish those who are responsible…

    Are taxpayers still paying for the legal defenses of these former GSE execs????

  14. It’s all posturing. Once Ob is reelected these “investigations” will die

  15. About time…. Just hope that the dumbasses prosecuting don’t screw this up or that the sanctions, if any, are commensurate with the crimes which should include conspiracy, racketeering and money laundering.

    If true justice is served they should be in prison until they die, their assets stripped away and THEIR families made to suffer as the ones who have been the unwilling and unknowing participants of a massive ponzi scheme and victims of fraudclosure that lined the pockets of the banksters and pricks like these.

    OBAMA…last chance; don’t screw this up!

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