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Mortgage

Former Fannie Mae CEO to face SEC charges for subprime mortgages

Jury could infer Daniel Mudd acted with intent

A judge ruled that former Fannie Mae CEO Daniel Mudd must face a civil trial over Securities and Exchange Commission charges that he misled investors about the government-sponsored enterprises’ exposure to subprime loans prior to the financial crisis, an article in Reuters said.  

According to the article, U.S. District Judge Paul Crotty in Manhattan on Monday ruled the SEC could take Mudd to trial over claims he concealed $441 billion of risky loans before Fannie Mae's September 2008 government seizure.

From Nate Raymond’s article in Reuters:

Crotty ruled that a jury could find that Fannie Mae's disclosures about its exposure to subprime loans and Alt-A loans, a category between prime and subprime, misleadingly excluded billions of dollars worth of mortgages.

Crotty said the SEC had also put forward evidence from which a jury could conclude Mudd knew or should have known that public statements he made about Fannie Mae's exposure to risky loans, as well as the company's disclosures, were false or misleading.

"From these facts, a rational jury could infer that Mudd acted with intent or recklessness," Crotty wrote.

The SEC originally filed the lawsuit in 2011 against former CEO Daniel Mudd, former Chief Risk Officer Enrico Dallavecchia and the Former Chief of the Single-Family Operation Thomas Lund for misleading investors about the entity's exposure to risky subprime mortgages. Each served at the firm between 2005 and 2009.

The SEC alleged that these three executives excluded nearly $100 billion in loans written to borrowers with weak credit histories from their financial disclosures. The GSE also allegedly failed to count $28.5 billion in mortgages bought from the Countrywide subprime unit in 2007.

In September last year, the SEC reached a settlement agreement with Dallavecchia and Lund for a mere $35,000. The SEC noted at the time that the litigation against Mudd was still ongoing.

Now, despite having spent years in court over the charges, the cases against the Fannie and Freddie execs each ended without serious punishment.

The lawsuit against the Freddie Mac execs also ended with a whimper, with the execs settling for $310,000.

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