And the action, however limited, may help refurbish the SEC’s reputation as an aggressive regulator, particularly as the country struggles with the after-effects of the financial crisis that the housing bubble fueled.
But the potential settlement - even it if it is little more than a rebuke - comes at an awkward time for Fannie Mae and Freddie Mac, which buy up thousands of mortgages from lenders and resell them in packages to investors. Last week, the government overseer of the two companies sued 17 large financial firms, blaming them for luring the mortgage giants into buying troubled loans. The case against the financial firms could be complicated should Fannie and Freddie sound a note of contrition for their own role in the implosion of the mortgage market in settling with the SEC.
The agency abandoned hopes of assessing a fine because of the precarious financial positions of the two companies, according to the people briefed on the case, who spoke on condition of anonymity because the deal was not yet final. The government has already propped up Fannie Mae and Freddie Mac with more than $100 billion since taking control of them in 2008. Any fee levied against them would simply wind up on the taxpayers’ tab.
The negotiations have been going on since at least early summer, and a deal may not materialize until later this year, these people cautioned. Fannie Mae, Freddie Mac, and the SEC all declined to comment.
The sprawling investigation into Fannie Mae and Freddie Mac once encompassed both civil and criminal elements. Earlier this year, recent chief executives at both companies received so-called Wells notices from the SEC, an indication that the agency was considering a civil enforcement action against them.
But three years on, the civil settlement would be the only government action against the companies.
