A three-year investigation by the Securities and Exchange Commission (SEC) into mortgage finance companies Fannie Mae and Freddie Mac is close to being settled, according to an article in the New York Times, without either of the two mortgage companies admitting fraud or paying a fine.
But the settlement, possibly later this year, will be significant in that it represents an "acknowledgment" of the two mortgage agencies' involvement in the housing boom and bust.
Fannie Mae and Freddie Mac were taken over by the government in 2008, with taxpayers picking up the $140-billion tab to keep them afloat. Not even two weeks ago, on Sept. 2, the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, sued 17 large banks, seeking billions in restitution for charges that they misled the two agencies into buying bad loans.
Given that any financial penalty imposed on Fannie Mae and Freddie Mac by the SEC would have to come out of taxpayers' pockets, it does seem to make sense not to impose one. However, this indirect admission of blame could put them in an awkward position as they pursue a financial settlement with the banks.
The federal investigation that began with much fanfare three years ago initially included threats of both criminal and civil charges for mortgage wrongdoing, but the end result is sputtering amidst the continuing fallout of the mortgage meltdown. The Justice Department has concluded its criminal investigation, according to the New York Times, without bringing any charges.
The larger concern for Fannie Mae and Freddie Mac is whether they will continue to operate for the longer term, given President Obama's announcement earlier this year that he plans to wind them down.
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