|Fannie Mae and Freddie Mac have cost taxpayers almost $150 billion, the largest bailout of the financial crisis [AFP]
The US Securities and Exchange Commission has brought civil fraud charges against six former top executives of Fannie Mae and Freddie Mac, saying they misled the government and taxpayers about risky subprime mortgages the agencies held during the housing bust.
Those charged include the mortgage giants' two former CEOs, Fannie's Daniel Mudd and Freddie's Richard Syron. They are the highest-profile individuals to be charged in connection with the 2008 financial crisis.
Mudd, 53, and Syron, 68, led the agencies when the housing bubble burst in late 2006 and 2007. The four other top executives also worked for the companies during that time. The case was filed in federal court in New York City.
In a statement released through his attorney on Friday, Mudd said the lawsuit "should never have been brought" and said the government reviewed and approved all of the company's financial disclosures.
"Every piece of material data about loans held by Fannie Mae was known to the United States government to the investing public," Mudd said.
"The SEC [Securities and Exchange Commission] is wrong, and I look forward to a court where fairness and reason, not politics, is the standard for justice.''
Al Jazeera’s Patty Culhane, reporting from Washington DC, said: "One of the reasons why I think this is so remarkable is that people are wondering ‘where is the accountability at Fanny Mae and Freddie Mac?’
“The SEC has this job of keeping these companies accountable and there has been incredible criticism about their track records leading up to the housing bubble burst, but also in aftermath of it.”
According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8b worth of subprime loans on its books, or just 0.2 per cent of its portfolio.
The SEC says that Fannie actually had about $43b worth of products targeted to borrowers with weak credit, or 11 per cent of its holdings.
Mudd told a congressional panel in March 2007 that Fannie's subprime business represented less than "2 per cent of our book". He also said the company held subprime mortgages "very carefully".
So far, the companies have cost taxpayers almost $150b, the largest bailout of the financial crisis. They could cost up to $259b, according to its government regulator, the Federal Housing Finance Administration.
The other executives charged were Fannie's Enrico Dallavecchia, a former chief risk officer, and Thomas Lund, a former executive vice president; Freddie's Patricia Cook, a former executive vice-president and chief business officer, and Donald Bisenius, a former senior vice-president.
Lund's lawyer, Thomas Levy, said in a statement that Lund "did not mislead anyone.'' Lawyers for the other defendants declined to comment.