Fannie Mae and Freddie Mac are reportedly near a settlement with the Securities and Exchange Commission over their failure to disclose to shareholders how heavily the firms had invested in subprime mortgages.
According to The New York Times, the agreement under discussion “would include no monetary penalty or admission of fraud.” The SEC is said to be hesitant to impose a penalty because the two companies are now held by the government so taxpayers would ultimately have to pay any fine.
In a somewhat ironic twist, the SEC has filed lawsuits against 17 financial firms “blaming them for luring the mortgage giants into buying troubled loans,” according to the Times. Now, as part of an SEC settlement, if Fannie Mae and Freddie Mac say they knew what they were buying, it will undermine the SEC’s case against the banks.
No deal is expected to be in the immediate future and could be months away, sources told the Times.
The investigation into the mortgage giants was originally expected to result in criminal prosecutions, but that has not happened. “The criminal inquiry has sputtered to a halt. The Justice Department has concluded its inquiry, at least at Freddie Mac, according to a securities filing in August by the company. No charges have been filed against either company,” the Times reports.
The Obama administration announced that it would wind down the two mortgages companies.