US mortgage giants Fannie Mae and Freddie Mac are close to reaching a settlement with regulators over disclosing their role in the 2008 financial crisis, the New York Times reported Friday. The accord with the Securities and Exchange Commission (SEC) will include no monetary penalty or admission of fraud, the Times reported on its website, citing people briefed on the case.
The US government took over the two firms in 2008, pumping more than $100 billion into them in order to keep them solvent. Any penalty would effectively accrue to taxpayers, the Times said. The three-year SEC probe - which has looked into whether the firms misled the public about their portfolios - was initially expected to lead to criminal and civil penalties, but would end with the mostly symbolic settlement.
A week ago, US authorities hit 17 major banks with lawsuits over losses on mortgage-backed securities that lost value in the 2008 financial crisis, costing taxpayers tens of billions of dollars. The Federal Housing Finance Agency said it was suing financial institutions including Bank of America, Goldman Sachs, Citigroup, J.P. Morgan Chase, Deutsche Bank, HSBC, Barclays and Nomura.
The FHFA alleged in its lawsuits that the banks' peddling of mortgage-backed securities during the bubble years eventually led to steep losses at Fannie Mae and Freddie Mac. Bank of America sold $32.6 billion of residential mortgage-backed securities to Fannie and Freddie, according to the FHFA's court filings. The two mortgage giants bought $14.1 billion of the securities from Credit Suisse, $14.2 billion from Deutsche Bank and $11.1 billion from Goldman Sachs, according to the filings. FHFA regulates Fannie and Freddie, which, along with two other smaller agencies, insure or guarantee 90 percent of all new US home loans.
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