Academic

The SEC has served a Wells notice on the ex-CEO of Freddie Mac, a week or so after doing the same on the ex-CEO of Fannie Mae.  (NYT article here.)  The details of the SEC's investigation of Freddie Mac and Fannie Mae seem to be following the blueprint of its investigation of, litigation against and settlement with Countrywide executives for securities fraud.  Remember that Freddie Mac and Fannie Mae were publicly held corporations during the subprime mortgage meltdown, and during this time and the years leading up to it, filed disclosure documents with the SEC.  The SEC is suggesting that these documents fraudulently painted a "too rosy" picture of the mortgage giants' portfolios.

If this line of attack is reminiscent of the SEC's case against Countrywide executives, there is a reason.  In that case (blogged with links here), the SEC accused Countrywide of securities fraud for (among other things) classifying their mortgages not as "prime" and "subprime" but as "conventional conforming," "conventional nonconforming," "prime home equity" and "nonprime."  Even though the documents, explained each category and detailed such pertinent information about each category such as loan-to-value information, the SEC claimed this was misleading.  The case settled for millions of dollars (blogged with links here).

We will have to see if the SEC makes a case against executives of either of these entities.  The interesting twist is that, unlike Countrywide, which expanded into subprime mortgages on its own initiative for primarily profit-related reasons, these entities were encouraged to expand the credit markets for all homeowners by the same government that is investigating them.  For now, here is the 2006 Fannie Mae Annual Report and the 2006 Freddie Mac Annual Report.  You make the call.