Wednesday, February 22, 2012

Legal Bills:Watchdog Rebukes Fannie, Freddie Over Legal Bills

U.S. government regulators haven't done enough to limit the over $100 million in legal fees that Fannie Mae and Freddie Mac are paying on behalf of executives who departed in accounting scandals, a federal watchdog said.

The two mortgage-finance corporations are spending tens of countless bucks fighting securities lawsuits and alternative litigation on behalf of former executives, bills that have congregated even when the businesses were seized by federal regulators in September 2008. Lawmakers are vital of the companies' regulator, the Federal Housing Finance Agency, for permitting those payments.

Many of the legal bills stem from a class-action case filed against Fannie Mae in 2004 in federal court in Washington, D.C. It alleges that 3 former executives of Fannie Mae manipulated the company's earnings to inflate their bonuses, whereas misleading their regulator and also the public. So far, the case has concerned sixty seven million pages of documents and a hundred and twenty depositions, in keeping with the report printed by the inspector general for FHFA.

The FHFA's inspector general found that the regulator has never undertaken an freelance review of how Fannie and Freddie confirm whether or not legal services are affordable or valid. in a very report released Wednesday, the inspector general counseled developing customary legal billing practices for each corporations. It conjointly counseled putting in place a lot of narrowly written agreements to pay legal bills and creating a lot of use of administrators and officers liability insurance to pay such bills.

The housing regulator "must continue its efforts to each management and scrutinize these legal expenses currently and within the future," Steve Linick, the inspector general, said in a very statement.

For its half, the FHFA has said it's no selection however to try and do pay the bills underneath legal contracts with the previous executives. Such agreements to pay legal bills for administrators and officers build it doable for each corporations to recruit new executives, the agency's acting director, Edward DeMarco, has said.

The report acknowledged that the agency has "limited tools" to limit Fannie's and Freddie's litigation expenses. It noted that many potential moves to limit such expenses, like rejecting the contracts outright or capping legal expenses, may be subject to a legal challenge. Furthermore, requiring Fannie and Freddie to shop for a lot of insurance for such lawsuits would not possible cowl previous legal claims.

The FHFA's general counsel, Alfred Pollard, agreed with the report's recommendations, writing in a very letter to the inspector general that the housing regulator can intensify scrutiny of legal prices and document its oversight plans. The FHFA is charged with limiting losses at the corporations, that have price taxpayers $151 billion and counting.

Fannie Mae has spent over $99 million since 2004 to defend 3 former executives: Franklin Raines, the company's former chief govt, former controller Leanne Spencer and former chief monetary officer Timothy Howard, the report found. Of that legal spending by Fannie Mae, $37 million has return since the federal takeover. Meanwhile, Freddie Mac has spent over $10 million since the federal takeover defending officers and administrators from investigations and lawsuits, the report found.

Fannie and Freddie are paying legal bills for class-action cases arguing the businesses misrepresented their monetary condition before their federal takeover.

And the taxpayer-supported corporations are answerable for paying the legal prices of six former executives sued by the Securities and Exchange Commission in December. Those executives, together with former Fannie Mae CEO Daniel Mudd and former Freddie Mac Chief govt Richard Syron, face the SEC's civil lawsuits, that accuse them of enjoying down the risks of the firms' investments in subprime mortgages. The executives have said they're going to contest the costs.

Rep. Randy Neugebauer (R., Texas) said in a very statement that lawmakers are "going to try and do everything we will to spare the yankee taxpayer any further exposure with Fannie and Freddie."

The report, he said, highlights that "more must be done to form fully sure FHFA and [Fannie and Freddie] are held accountable and a thought created to confirm prices are controlled."
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