In Northern California a large number of homeowners are suffering because of loans obtained before the recession with high interest rates that could not be refinanced, declining property values and loans with negative amortization. For the most part, there have been no legal consequences for the lenders or their executives that were involved in the crisis resulting from subprime loans. The SEC and the Justice Department have been facing criticism for not doing anything to hold companies and executives accountable for any wrongdoing related to the financial crisis.
Today, the SEC charged six former executives of Fannie Mae and Freddie Mac with securities fraud claiming they misled the public about the companies' exposure to subprime loans during the onset of the mortgage meltdown. Fannie and Freddie provide funding for mortgage lenders and play a central role in housing finance. The companies were taken over by the federal government in 2008 and have received billions of dollars of taxpayer money to keep operating. The SEC said that it was not prosecuting the companies because Fannie and Freddie are now part of the government.
According to SEC enforcement director Robert Khuzami, Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was. 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 on the company's books. The SEC said it is trying to force the Fannie and Freddie executives to pay fines and give up "ill-gotten gains" and to bar them from serving as officers or directors of public companies. The SEC alleged that in 2007, when Fannie Mae began reporting its exposure for subprime loans, or loans made to borrowers with weaker credit histories, it disclosed less than one-tenth of the total loans that met that description. At the time, Fannie's executives were trying to expand the company's market share by buying up more subprime and Alt-A loans. Alt-A loans often required no documentation of the borrower's income.
At Freddie Mac, the executives claimed that Freddie's single-family business had no subprime exposure, according to the SEC. At the time, Freddie was at risk for about $141 billion in loans that were described internally as "subprime" or "subprime like," accounting for 10 percent of the portfolio. That figure grew to about $244 billion, which was 14 percent of the portfolio, by mid-2008, according to the SEC. When the government seized the companies in September 2008, it wiped out all shareholders who owed stock in the companies. The Treasury Department received a 79.9 percent ownership stake in the firms.
The executives charged in the civil suits include Daniel H. Mudd, former chairman and chief executive of Fannie Mae, Richard F. Syron, former chairman and chief executive at Freddie Mac, Enrico Dallevecchia, Fannie's former chief risk officer; Thomas A. Lund, former executive vice president of Fannie's single-family mortgage business; Patricia L. Cook, former chief business officer of Freddie Mac; and Donald J. Bisenius, former executive vice president for Freddie's single family guarantee business.
The lawsuits were filed in federal court in Manhattan, where a judge recently refused to accept a settlement between the SEC and Citigroup and challenged the SEC's standard practice of settling cases without admissions or denials of wrongdoing.
If you are having problems with a loan in Northern California, bankruptcy may help you pay off arrearages or remove an unsecured loan allowing you to keep your house. If you are in foreclosure, you should consult with an attorney. We provide free legal consultations for bankruptcy in San Francisco County, Sacramento County, Alameda County, Contra Costa County, San Mateo County, Santa Clara County, Stanislaus County, San Joaquin County, Marin County, Solano County and throughout Northern California. Contact us for a free legal consultation today.
