Monday, December 19, 2011

SEC sues 6 former Fannie and Freddie executives

Last week the Securities and Exchange Commission announced that it had filed civil lawsuits against six former executives of mortgage giants Fannie Mae and Freddie Mac.  The allegations, according to this story are mostly that the executives greatly understated the level of risk involved in the mortgages being sold to investors.  For instance, one of the defendants once gave a major speech asserting that Fannie Mae had "virtually no" subprime mortgages.  The problem was that Fannie was using its own definition of subprime not the one the rest of us understood.  To Fannie, "subprime" was a function of the lender, not the borrower.  Any loan made by a Wall Street firm, for instance, was deemed a "prime" loan, no matter what the credit score of the borrower.

The only thing I find shocking about this is the fact that the SEC has taken some action at this point, more than three years after the financial collapse.  You would have thought that an event that nearly destroyed the western world's financial system would have had some culpable folks, but to date, hardly any have been held accountable.  Perhaps this suit signals a change in that, but I doubt it.

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