The U.S. government has spent $132 million so far defending Fannie Mae in court, following the September 2008 takeover of the teetering mortgage underwriter and its counterpart, Freddie Mac. Of this total, $24.2 million alone has gone towards legal defense for three of Fannie’s former top executives: CEO Franklin D. Raines; CFO Timothy Howard; and Controller Leanne Spencer.

 

Another $28 million in taxpayer money has been consumed defending Freddie Mac.

 

The costly lawsuits stem not from involvement in the subprime loan fiasco, but rather from allegations that officials reported incorrect corporate earnings before the 2008 crisis. From 2000-2002, Freddie understated its income by $5 billion, while Fannie overstated its figures by $6.3 billion over a six-year period. The Office of Federal Housing Enterprise Oversight (OFHEO) sued Raines and Howard in 2006. In 2008, without admitting to OFHEO’s allegations, Raines agreed to pay $24.7 million and Howard $6.4 million.

 

It is common for corporations to pay the legal fees of their executives; however in this case, because of the bailout, the owners of the corporations happen to the American taxpayers.

 

Most of the Fannie Mae legal costs are a result of a class action suit alleging accounting improprieties brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio. Although the lawsuit was filed in 2004, a trial date has not yet been set.

 

Congress has yet to decide what to do with Freddie and Fannie long-term. Lawmakers are expected to debate the matter this year, amid the reality that the two companies have suffered $150 billion in losses from bad loans.

-Noel Brinkerhoff, David Wallechinsky

 

Mortgage Giants Leave Legal Bills to the Taxpayers (by Gretchen Morgenson, New York Times)

Report of the Special Examination of Fannie Mae (office of Federal Housing Enterprise Oversight) (pdf)