I have long held the belief that Fannie and Freddie were leading charge when it came to the housing boom and then bust. Certainly there were other actors with fault viably assigned, but Fannie and Freddie were the agencies that led the way.
So hearing that they are being charged with fraud is a bit of vindication:
The Securities and Exchange Commission today 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 loans the mortgage giants held when the housing bubble bust.
And for what are they accused of:
“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.”
And to what extent?
According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books, or just 0.2 percent of its portfolio. The SEC says that Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit, or 11 percent of its holdings.
Mudd told a congressional panel in March 2007 that Fannie’s subprime business represented less than “2 percent of our book.” He also said the company held subprime mortgages “very carefully.”
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.
In a May 2007 speech in New York, Syron said Freddie had “basically no subprime exposure,” according to the suit.
And how big of a player are they in the market today?
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default and then sell them to investors around the world. The two own or guarantee about half of U.S. mortgages, or nearly 31 million loans.
Half. The two agencies own or guarantee HALF of ALL the mortgages in the US.
And they lied.