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6 execs charged in U.S. subprime mortgage fiasco
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The Associated Press
The U.S. Securities and Exchange Commission brought civil fraud charges on Friday against six former top executives at government-backed mortgage holders Fannie Mae and Freddie Mac, saying they misled investors about risky subprime loans when the housing bubble burst.
Those charged include the agencies' two former CEOs, Fannie's Daniel Mudd and Freddie's Richard Syron. They are the highest-profile individuals to be charged in connection with the 2008 financial crisis.
The federal government has faced criticism for not bringing charges against top executives who may have contributed to the worst financial meltdown since the Great Depression.
Mudd, 53, and Syron, 68, led the mortgage giants in 2007, when home prices began to collapse. The four other top executives also worked for the companies during that time.
The lawsuit was filed in federal court in New York City.
"Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was," said Robert Khuzami, the 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."
Fannie and Freddie both entered into agreements with the government on Friday, accepting responsibility for their conduct without admitting or denying the charges. The government-controlled companies also agreed to co-operate with the SEC on the cases against the former executives.
The Justice Department has opened up probes into Fannie and Freddie but has not charged anyone with a crime.
Ex-CEO says 'the SEC is wrong'
In a statement released through his attorney, Mudd said the lawsuit "should never have been brought" and said the government reviewed and approved all of the company's financial disclosures.
"Every piece of material data about loans held by Fannie Mae was known to the United States government, to the investing public," Mudd said. "The SEC is wrong, and I look forward to a court where fairness and reason — not politics — is the standard for justice."
Syron's lawyers said the case was "without merit," and said the term "subprime had no uniform definition in the market" at that time.
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.
Fannie, formally known as the Federal National Mortgage Association, and Freddie, short for Federal Home Loan Mortgage Corp., 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.
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