SEC Charges Fannie & Freddie Execs & Wells Fargo Exec Comments

Federal Regulators have just charged six former executives, including some former CEOs, at the mortgage giants Fannie Mae and Freddie Mac, with securities fraud. It is alleged that they misled investors about their exposure to risky subprime mortgage debt.

• Three former Fannie Mae and Freddie Mac executives were sued by the SEC on Friday.

• Civil charges were filed in two separate lawsuits in a New York Federal court.

• Among those charged were former Freddie Mac CEO Richard Syron and former Fannie Mae CEO Daniel Mudd.

The SEC states that “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was.” The SEC is seeking financial penalties and forfeiture of ill-gotten gains with interest and to bar charged individuals from serving on corporate boards. Others charged include:

• Fannie Mae – former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President Thomas A. Lund, officer in the single family mortgage business.

• Freddie Mac – former Executive Vice President and Chief Business Officer Patricia L. Cook and former Executive Vice President for the Single Family Guarantee business Donald J. Bisenius.

While this is interesting, possibly more interesting is an article at CNNMoney by Richard M. Kovacevich, the retired Chairman & CEO of Wells Fargo. From the article titled Fannie and Freddie must go – here’s how:

“We don't understand why reform of Freddie and Fannie is taking so long and what all the angst is about. The solution is straightforward: The public/private hybrid of Fannie and Freddie should be abolished, their existing business sold or liquidated, and the mortgage market privatized.

This can be done in an orderly way in a few easy steps.
Fannie's and Freddie's existing portfolio of mortgages should be sold at a rate of about $75 billion a year until it reaches zero.

The current $625,000 size limit on new mortgages guaranteed by Fannie and Freddie should be reduced by $100,000 per year, so that Fannie and Freddie would be out of the guarantee business within six years.

The liability for any outstanding guarantees would be managed by the current government conservatorship of Fannie and Freddie until they run off or are sold.”
If the government still wants to be in the mortgage business for low-income families or minorities, it should be on budget and transparent. There already exists a government organization to do this -- the Federal Housing Authority.”

In a CBS News report that delved into the bailout money received by Wells Fargo, the first sentence stated “Wells Fargo hit the jackpot.” It reported rapid order during the bailout situation:

• Wells Fargo declined to buy out Wachovia Bank.

• Six days later, Wells Fargo flip-flopped and made the announcement that they would buy Wachovia.

• During that six days, Treasury Secretary Henry Paulson quietly issued a document revising the tax code, giving enormous benefits to some banks that buy other banks.

• Also subsequent to that document in that six days, Congress passed the bailout bill giving $25 billion directly to Wells Fargo.

And, guess who issued this statement: “This is of course a very exciting moment in the long history of Wachovia and Wells Fargo.” That would be the then chairman of Wells Fargo, Richard Kovacevich.