NEW YORK (Reuters) – Six former top executives at Fannie Mae and Freddie Mac were sued by U.S. regulators on charges of misleading investors about the mortgage finance companies' exposure to risky home loans in the run-up to the 2008 financial crisis.

The case is one of the U.S. Securities and Exchange Commission's biggest actions against high-level financial industry executives, although the regulator did not specify a dollar amount for damages in the alleged fraud. Many lawmakers consider Fannie Mae and Freddie Mac at least partly responsible for the 2008 crisis, saying they encouraged lax lending to home buyers that led to a massive real estate bubble.

The SEC brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time executives.

Mudd, now chief executive of Fortress Investment Group, and Syron left the mortgage finance companies after they were taken over by the government in 2008 as mortgage losses spiraled. The two firms have been propped up by $169 billion in federal aid since they were seized.

The SEC is seeking to bar the defendants from serving as officers or directors of public companies, among other penalties.

Fortress, one of the few publicly traded hedge fund and private equity companies, said it would review "the matters addressed in the complaint" against Mudd, but noted that the lawsuit concerned his previous job at Fannie Mae.

An attorney for Syron said the SEC case was "without merit" and relied on a mistaken approach in examining the mortgage giant's disclosures. He said the firm had appropriately disclosed the amount of risk underlying its loans.

"Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to assess the degree of risk in Freddie Mac's guaranteed portfolio. The SEC's theory and approach are fatally flawed," attorney Thomas Green said.

Other defendants include former Fannie Mae Chief Risk Officer Enrico Dallavecchia, who later became chief risk officer at PNC Financial Services. PNC spokesman Frederick Solomon said Dallavecchia stepped down from his PNC post on Friday and was on administrative leave.

Attorneys for Mudd and Dallavecchia did not immediately respond to requests for comment.

LIGHTNING RODS

Since Fannie Mae and Freddie Mac nearly went bust, the congressionally chartered firms have become political lightning rods.

Republicans point to them as the culprits behind the foreclosure and housing crisis, and Democrats and Republicans alike want to dismantle them, although they cannot agree how.

Republican presidential front-runner Newt Gingrich has been harshly criticized by some of his opponents for accepting up to $1.6 million as a consultant to Freddie Mac from 1999 until 2008. Gingrich says he was not a lobbyist but was paid for "strategic advice."

Both firms have recently drawn fire on Capitol Hill for extending multimillion-dollar pay packages to executives, and Republicans and Democrats largely agree that the mortgage giants eventually need to be shut down. Fannie Mae and Freddie Mac buy loans from lenders and repackage them as guaranteed securities for sale to investors.

"Today's news underscores how important it is that Congress work to end the ongoing taxpayer bailout of Fannie and Freddie," said Republican U.S. Congressman Scott Garrett of New Jersey. "Fannie Mae and Freddie Mac played a leading role in the 2008 financial collapse that wreaked havoc on the U.S. economy and, in domino effect, economies across the globe."

The SEC said on Friday that Fannie Mae and Freddie Mac will cooperate with the agency and have agreed to admit responsibility for the alleged misconduct, without acknowledging or denying liability. The firms have also entered into non-prosecution agreements with the agency, the SEC said.

Freddie Mac, in a statement, said it had reached an agreement with the SEC but did not comment on the charges against its former executives. Fannie Mae representative Andrew Wilson also declined comment on the charges, but said "we are pleased to bring the SEC inquiry to a close."

MORTGAGE RISKS

In lawsuits filed in U.S. District Court in Manhattan, the SEC said the six defendants made it appear that their companies had far less exposure to risky mortgages in their loan portfolios than in fact existed.

In one episode in 2006, the SEC said, Syron said on an earnings conference call that "we, as you know, weren't really involved in underwriting much of that business, any of that business, directly," referring to the subprime loan market.

That statement, the SEC said, was "materially false and misleading," because at around that time Freddie Mac's single-family credit guarantee portfolio contained $141 billion worth of subprime loans, 10 percent of its total.

The SEC also charged Thomas Lund, a former executive vice president at Fannie Mae. His lawyer, Michael Levy, said his client "did not mislead anyone."

Lawyers for the two other defendants, former Freddie Mac executives Patricia Cook and Donald Bisenius, did not immediately respond to requests for comment.

The SEC is asking the court to order the six defendants to pay back alleged illegal profits. The documents did not specify what amount the SEC would be seeking.

"The companies adopted very broad definitions of subprime, leaving reasonable investors to conclude that what was disclosed in their filings was the entirety of their subprime exposure," Robert Khuzami, director of the SEC's enforcement division, said at a news conference.

"Investors were robbed of the opportunity to make informed investor choices," he said.

The cases are SEC v. Daniel Mudd et al., No. 11-9202 and SEC v. Syron et. al No. 11-9201, U.S. District Court for the Southern District of New York.

(Additional reporting by Margaret Chadbourn in Washington and Svea Herbst-Bayliss in Boston; editing by Martha Graybow, Gerald E. McCormick, Gunna Dickson and John Wallace)

NEW YORK (Reuters) – Six former top executives at Fannie Mae and Freddie Mac were sued by U.S. regulators on charges of misleading investors about the mortgage finance companies' exposure to risky home loans in the run-up to the 2008 financial crisis.

The U.S. Securities and Exchange Commission brought civil fraud charges on Friday against former Fannie Mae CEO Daniel Mudd, former Freddie Mac CEO Richard Syron and four other one-time high-level executives.

Mudd, now chief executive of Fortress Investment Group, and Syron left the mortgage finance companies after they were taken over by the government in 2008 as mortgage losses spiraled. The two firms have been propped up by $169 billion in federal aid since they were seized.

The SEC is seeking to bar the defendants from serving as officers or directors of public companies, among other penalties.

Fortress, one of the few publicly traded hedge fund and private equity companies, said it would review "the matters addressed in the complaint" but noted that the lawsuit concerned Mudd's previous job at Fannie Mae.

An attorney for Syron said the SEC case was "without merit" and relied on a mistaken approach in examining the mortgage giant's disclosures, and said the firm had appropriately disclosed the amount of risk underlying its loans.

"Simply stated, there was no shortage of meaningful disclosures, all of which permitted the reader to asses the degree of risk in Freddie Mac's guaranteed portfolio. The SEC's theory and approach are fatally flawed," attorney Thomas Green said.

The other defendants include former Fannie Mae Chief Risk Officer Enrico Dallavecchia, who later became chief risk officer at PNC Financial Services. PNC spokesman Frederick Solomon said Dallavecchia stepped down from his PNC post on Friday and was on administrative leave.

Since Fannie Mae and Freddie Mac nearly went bust, the congressionally chartered firms have repeatedly come under fire in the race for the U.S. Republican presidential nomination. The candidates say the mortgage firms are partly to blame for the foreclosure and housing crisis.

Republican front-runner Newt Gingrich has been harshly criticized by some of his opponents for accepting up to $1.6 million as a consultant to Freddie Mac from 1999 until 2008. Gingrich says he was not a lobbyist but was paid for "strategic advice."

The SEC said on Friday that Fannie Mae and Freddie Mac will cooperate with the agency in its lawsuits and have agreed to admit responsibility for the alleged misconduct, without acknowledging or denying liability.

The firms have also entered into non-prosecution agreements with the agency, the SEC said.

MORTGAGE RISKS

In court papers filed in U.S. District Court in Manhattan, the SEC said Mudd, Syron and others approved false statements to investors. The six defendants made it appear that their companies had far less exposure to risky mortgages in their loan portfolios than in fact existed, the SEC contends.

Attorneys for Mudd and Dallavecchia did not immediately respond to requests for comment.

In one episode in 2006, the SEC said, Syron said on an earnings conference call that "we, as you know, weren't really involved in underwriting much of that business, any of that business, directly," referring to the subprime loan market.

That statement, the SEC said, was "materially false and misleading," because at around that time Freddie Mac's single-family credit guarantee portfolio contained $141 billion worth of subprime loans, 10 percent of its total.

The SEC also charged Thomas Lund, a former executive vice president at Fannie Mae. His lawyer, Michael Levy, said his client "did not mislead anyone."

Former Freddie Mac executives Patricia Cook and Donald Bisenius were also charged. Their lawyers did not immediately respond to a request for comment.

The cases come as U.S. lawmakers are turning their attention to tackling the future of the nation's housing finance system. Republicans and Democrats largely agree that Fannie Mae and Freddie Mac eventually need to be shut down. Both companies were chartered by Congress to foster a liquid mortgage market.

MATERIALLY FALSE AND MISLEADING

The SEC is asking the court to order the six defendants to pay back alleged illegal profits. The documents did not specify what amount the SEC would be seeking.

"The companies adopted very broad definitions of subprime, leaving reasonable investors to conclude that what was disclosed in their filings was the entirety of their subprime exposure," Robert Khuzami, director of the SEC's enforcement division, said at a news conference.

"Investors were robbed of the opportunity to make informed investor choices," he said.

In the Fannie Mae complaint, the SEC said the executives made misleading statements between December 2006 and August 2008. In the Freddie Mac case, the regulator said the alleged wrongdoing took place between March 2007 and August 2008.

Fannie Mae and Freddie Mac buy loans from lenders and repackage them as guaranteed securities for sale to investors.

Freddie Mac, in a statement, said it had reached an agreement with the SEC but did not comment on the charges against its former executives. A Fannie Mae representative did not immediately respond to calls seeking comment.

The cases are SEC v. Daniel Mudd et al., No. 11-9202 and SEC v. Syron et. al No. 11-9201, U.S. District Court for the Southern District of New York.

(Additional reporting by Margaret Chadbourn in Washington and Svea Herbst-Bayliss in Boston; editing by Gerald E. McCormick, Gunna Dickson and John Wallace)

WASHINGTON – The Securities and Exchange Commission has brought civil fraud charges against six former top executives at Fannie Mae and Freddie Mac, saying they misled the government and taxpayers about risky subprime mortgages the mortgage giants held during the housing bust.

Those charged include the agencies’ 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 and Syron led the mortgage giants 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. Lawyers for Mudd and Syron couldn’t be reached for comment.

According to the lawsuit, Fannie told investors in 2007 that it had roughly $4.8 billion worth of subprime loans on its books. The SEC says that Fannie actually had about $43 billion worth of products targeted to borrowers with weak credit.

Freddie said about 11 percent of its single-family loans were subprime in 2007. The SEC says it was closer to about 18 percent.

“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” said Robert Khuzami, SEC’s enforcement director. “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.”

Fannie and Freddie own or guarantee about half of U.S. mortgages, or nearly 31 million loans. The Bush administration seized control of the mortgage giants in September 2008.

So far, the companies have cost taxpayers almost $150 billion — the largest bailout of the financial crisis. They could cost up to $259 billion, according to its government regulator, the Federal Housing Finance Administration.

WASHINGTON (Reuters) – Regulators are close to an agreement with Fannie Mae and Freddie Mac to settle a case over disclosing their exposure to risky subprime loans, The New York Times reported on Thursday.

Neither a monetary penalty nor an admission fraud would be included in the settlement under the proposed agreement with the Securities and Exchange Commission, the Times reported, citing several people briefed on the case.

The SEC abandoned hopes of assessing a fine because of the precarious financial positions of the two companies, the newspaper said, citing sources who spoke on condition of anonymity because the deal was not yet final.

The two companies did not view the government's case as particularly strong, but they said they moved to settle to spare time and resources, the Times said, citing one person close to the talks.

The negotiations have been going on since at least early summer, and a deal may not come until later this year, the newspaper said, citing its sources.

Fannie Mae, Freddie Mac and the SEC all declined to comment, the report said.

A settlement would represent the most significant acknowledgment yet by the mortgage finance giants that they played a central role in the housing boom and bust, the New York Times said.

(Reporting by JoAnne Allen; editing by Ramya Venugopal)

WASHINGTON (Reuters) – A top executive at mortgage finance giant Freddie Mac (FMCC.OB) received a “Wells Notice” from the Securities and Exchange Commission that the agency was considering filing an enforcement action against him, according to an SEC filing released on Thursday.

The filing said Executive Vice President Donald Bisenius, who heads the single-family mortgage unit, may have violated federal securities laws and related rules in 2007 and 2008.

(Reporting by Corbett B. Daly and Rachelle Younglai; Editing by Leslie Adler)

WASHINGTON (Reuters) – A top Freddie Mac (FMCC.OB) executive received notice the government may file charges against him for allegedly violating securities laws in the years leading up to the housing bust, according to a regulatory filing released on Thursday.

Executive Vice President Don Bisenius received a “wells notice” from the Securities and Exchange Commission that the agency is considering filing an enforcement action against him for possibly violating federal securities laws and related rules in 2007 and 2008.

The revelation comes just days after a former Freddie Mac chief financial officer Anthony Piszel also received a similar warning from the SEC. Piszel, who was the mortgage giant’s CFO between 2006 and 2008, was forced to resign earlier this month from CoreLogic Inc (CLGX.N), where he was working as the company’s chief financial officer.

Freddie Mac and sister entity Fannie Mae (FNMA.OB) have both been under investigation since September 2008 for their role in the mortgage crisis.

The government-controlled entities have been subpoenaed for documents as part of a federal grand jury into their accounting. The SEC and the Federal Bureau of Investigation have also been probing the companies for possible corporate fraud.

“Management has determined that, as of the date of this filing, we have ineffective disclosure controls and procedures and a material weakness in our internal control over financial reporting,” Fannie Mae said in a separate filing, also released on Thursday.

FREDDIE MAC SEEKS $500 MILLION; FANNIE MAE $2.6 BILLION

Freddie Mac also said it would need another $500 million from taxpayers after reporting its sixth straight quarterly loss, though it would pay more than three times that amount back to the government in interest on money already borrowed from the government.

Fannie Mae, the largest provider of U.S. residential mortgage funds, said in its filing it would need an additional $2.6 billion from the Treasury Department but would pay an almost equal amount back to taxpayers.

The U.S. Treasury took control of Freddie Mac and Fannie Mae at the height of the financial crisis in September 2008 as losses mounted from mortgages gone bad.

Under their takeover terms, the companies must make a 10 percent dividend payment on the government loans, much as credit card borrowers must make minimum monthly repayments.

Fannie Mae said it lost $2.1 billion in the final three months of last year. The fourth-quarter loss, about $0.37 per share, includes a $2.2 billion dividend payment the company paid to the government.

Smaller Freddie Mac reported a loss of $113 million in the fourth quarter, a tiny fraction of the double digit billions the firm lost in the quarters immediately after the government seized it more than two years ago.

The fourth-quarter loss, about $0.53 per share, includes a $1.6 billion dividend payment Freddie Mac paid to the government.

The two firms are now on the hook for about $134 billion in combined taxpayer aid, excluding dividend payments.

As a result of Freddie Mac’s small draw and large repayment, the latest $3.1 billion combined request for new cash is smaller for the first time than the $3.8 billion combined interest payment required.

The plan to put them into conservatorship was meant to be temporary, though it is likely to be years before a long-term replacement structure takes shape.

(Reporting by Corbett B. Daly and Rachelle Younglai; Editing by Bernard Orr)

McLEAN, Va. – Shares of Fannie Mae and Freddie Mac will begin trading over-the-counter Thursday, nearly a month after the government-sponsored mortgage buyers said they could no longer meet the requirements of companies listed on the New York Stock Exchange.

Freddie Mac‘s common stock, now unlisted, will trade under the symbol “FMCC.” Investors will be able to trade Freddie Mac’s 20 classes of preferred stock.

Fannie Mae‘s common stock will trade under the symbol “FNMA.” Its preferred shares also will be listed.

Last month, the companies’ regulator, the Federal Housing Finance Agency, said that Fannie‘s shares have been below the $1 average price level for 30 trading days. NYSE rules require a company to take action to boost its shares or delist. Freddie‘s shares have hovered close to the $1 mark.

Fannie and Freddie were created by Congress to buy mortgages from lenders and package them into bonds that are resold to investors. Together they own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.

During the housing boom, the two loosened lending standards for borrowers and were broadsided when the housing market crumbled.

The government took over the two companies in September 2008 after they suffered huge loan losses.

In 2007, shares of both companies traded above $60. As the housing crisis deepened the stocks lost almost all of their value, plummeting below $1 by September 2008.

During the last day on the NYSE Wednesday, shares in Freddie Mac closed down 5 percent at 34 cents, then tumbled another 5 percent in after-hours trading.

Shares in Fannie Mae slid 17 percent to close below a quarter each.