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SEC settles with former Fannie Mae execs over subprime fraud

housingwire.com | September 24, 2015

By Ben Lane

[Update: Article updated with status of litigation against fomer Fannie Mae CEO Daniel Mudd.]

A 2011 lawsuit brought by the Securities and Exchange Commission against two former Fannie Mae executives over charges that the Fannie execs misled investors about the quality of subprime mortgages, is over, and it ended with a whimper.

According to a report from the Wall Street Journal, the SEC reached a settlement agreement with Enrico Dallavecchia, Fannie Mae’s former chief risk officer, and Thomas Lund, Fannie Mae’s former chief of the single-family operation, for a mere $35,000.

In its 2011 lawsuit, the SEC alleged that Dallavecchia and Lund, along with former Fannie Mae CEO Daniel Mudd, excluded nearly $100 billion in loans written to borrowers with weak credit histories from its financial disclosures.

The SEC also accused Fannie Mae of failing to count $28.5 billion in mortgages bought from the Countrywide subprime unit in 2007.

In addition, the SEC sued executives from Freddie Mac, alleging that its executives also misled investors over subprime mortgages.

Both lawsuits alleged that the former executives caused the now government-sponsored enterprises to “materially misstate” their holdings of subprime mortgage loans in periodic and other filings with the SEC, public statements, investor calls, and media interviews.

At the time, the SEC said that it was seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against the Fannie and Freddie execs.

In a release, the SEC noted that the litigation against Mudd is still ongoing.

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

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

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, the director of the SEC's Enforcement Division said when the lawsuits were filed in 2011.

“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,” Khuzami continued. “All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country's investors.”

In the end, it was full of sound and fury, signifying nothing.


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CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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