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Fannie, Freddie Said Near Settlement With SEC on Loan Disclosure

By James Sterngold
September 09, 2011 7:57 PM EDT

Government-supported housing finance agencies Fannie Mae and Freddie Mac are within months of settling claims that they failed to inform investors of their exposure to subprime mortgages before the 2008 credit crisis, according to a person with knowledge of the discussions.

The housing companies will neither admit nor deny defrauding investors, nor will they pay any fines under the proposed settlement with the U.S. Securities and Exchange Commission, said the person, who spoke on condition of anonymity because the talks are private.

The settlement involves allegations that the two firms didn’t adequately disclose to investors how much of their portfolios contained mortgages made to borrowers with low credit scores or borrowers who supplied little documentation. Losses linked to subprime loans pushed the firms to near-collapse before they were seized by regulators in September 2008.

Brad German, a spokesman for Freddie Mac, declined to comment, as did SEC spokesman John Nester. Amy Bonitatibus, a spokeswoman for Fannie Mae, didn’t immediately respond to a request for comment late yesterday.

Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, have drawn more than $171 billion in aid from the Treasury since the government takeover.

The proposed settlement with the firms was previously reported in The New York Times.

Separately, several former executives of the two firms are being investigated for their actions during the housing bubble.

Former Fannie Mae Chief Executive Officer Daniel Mudd has received a so-called Wells notice from the SEC telling him he may face claims. Former Freddie Mac CEO Richard Syron has also received a notice, according to two people briefed on the matter. Donald Bisenius, Freddie Mac’s former executive vice president for single-family credit guarantee, and Anthony “Buddy” Piszel, a former chief financial officer, both received Wells notices, according to public filings.

None has been accused of wrongdoing.

To contact the reporter on this story: James Sterngold in New York at jsterngold2@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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