Subprime Scandal: Poor Fannie Mae. The mortgage giant was conned into buying shoddy loans from Countrywide and deserves a refund. At least that's the story the Obama administration's telling.
The narrative is false. But when the federal government pushes it, under threat of prosecution, it's a powerful one.
Instead of fighting, Bank of America, the nation's biggest post-crisis pinata, decided to roll with the punches — again. After already agreeing to settle a trumped-up lending bias lawsuit and forking over billions to settle a $25 billion "foreclosure-abuse" case, BofA will now cough up $10 billion more to end a Justice Department suit alleging its Countrywide unit defrauded Fannie.
The Charlotte, N.C.-based bank earlier this week agreed to pay the government-backed agency $3.6 billion in penalties and buy back $6.75 billion in loans its mortgage unit sold to Fannie between 2000 and 2008.
The government claims Countrywide stuck the failed agency with some 30,000 subprime and other risky loans that soured in the housing bust.
Countrywide allegedly rubber-stamped mortgages to unqualified borrowers and hid their defects when it passed them off to Fannie. In other words, a private lender took advantage of the government-sponsored agency, which didn't know the junk it was buying.
What rot. A separate federal lawsuit filed last year by the SEC against both Fannie and Freddie shatters this victimization narrative. It says the toxic twins misled investors by hiding their exposure to hundreds of billions of dollars in subprime loans. The SEC charges they knowingly misclassified millions of subprime loans as "prime," thus blinding Wall Street to the degree of systemic risk the Treasury-backed agencies had created.
"Freddie and Fannie's failure to report $2 trillion in subprime loans misled all the market participants, including the rating agencies," ex-BB&T President John Allison recently said.
Fannie worked closely with Countrywide to make risky loans. Why? Because Countrywide's subprime loans counted heavily toward HUD's affordable housing goals, and HUD regulated both Fannie and Countrywide. So who defrauded whom?
"I believe that firms of all levels were significantly misled by government policy," Allison argues in his new book, "The Financial Crisis and the Free Market Cure."
Now who dare sues Washington?
Read More At IBD: http://news.investors.com/ibd-editorials/010813-639831-washington-defrauded-fannie-not-bank-of-america.htm#ixzz2HgKQTszS
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