The conservator for Fannie Mae (FNMA) and Freddie Mac was eager for publicity in September 2011 when it sued 17 financial institutions, accusing them of ripping off the two government-backed housing financiers. It isn’t so enthusiastic anymore.
This week the U.S. Federal Housing Finance Agency told a federal judge it had settled its case against Citigroup Inc. (C) The agency won’t say how much money Citigroup is paying. Neither will Citigroup, which survived the financial crisis only because it got multiple taxpayer bailouts. The parties agreed to keep the terms confidential. The government has decided this is none of the public’s business.
The agency had accused Citigroup of violating securities laws and making misrepresentations about $3.5 billion of mortgage bonds that it sold to Fannie and Freddie during the housing bubble, before they were seized by the government. This is the second such lawsuit to be resolved so far. In January, the agency dropped its suit against General Electric Co. (GE) after reaching a deal over mortgage bonds sold to Freddie Mac. (FMCC) In that case, too, the terms weren’t disclosed.
This should make every American’s blood boil. The government is devoting taxpayer resources to pursue these claims in court. The public is entitled to know the results. It’s that simple.
When I asked Corinne Russell, a spokeswoman for the housing-finance agency, why it is keeping the terms secret, she said the “public interest supports avoiding possible impacts on ongoing litigation and future settlements.”
Will the agency ever disclose them? That is “to be determined,” Russell said. Nice lack of commitment.
Here’s one way to interpret her statement: Other defendants that haven’t settled might not be willing to pay as much if they knew the deals that Citigroup and GE got. Perhaps the litigation against them was going nowhere, and the companies paid only a pittance to make the lawsuits go away. In that case, it would make sense that the housing-finance agency wouldn’t want the other defendants to know the details. It still wouldn’t justify keeping the public in the dark.
I don’t know if this is what happened, of course. Maybe the deals were hard on GE and Citigroup. Don’t blame me for spreading rumors here, though. That’s the nature of secrecy: It encourages the public to speculate. How well did the government and its lawyers do their jobs? There’s no way to know, because they are denying us the information we need to draw informed conclusions.
This conveniently makes it difficult for the public to hold anyone at the FHFA accountable. If the settlements were large, I suspect the agency would be bragging about them as an inducement to get other defendants to pay more.
Maybe we will get lucky, and a congressional committee will start asking questions and calling folks to testify. (A good start would be with Edward DeMarco, the agency’s acting director, and Mel Watt, the Democratic U.S. Representative from North Carolina who is President Barack Obama’s nominee to lead the agency.) Otherwise, we may never know what happened, or if the government’s claims on behalf of Fannie and Freddie had any merit -- especially if the defendants all settle out of court.
These weren’t puny claims, either. When the FHFA filed the 17 lawsuits, it said the bond issuers had misled Fannie and Freddie about the soundness of the loans underlying $196 billion of mortgage-backed securities. Other defendants include JPMorgan Chase & Co., Goldman Sachs Group Inc., Deutsche Bank AG, Bank of America Corp., and Ally Financial Inc. -- the last of which is still majority-owned by the government.
Not all government agencies behave this way. The most comparable example may be the Federal Deposit Insurance Corp. Its policy is that all settlements are public whenever the FDIC files claims as a conservator or receiver for a failed bank. Those include mortgage-fraud settlements, as well as accords with bank officers, directors, appraisers, attorneys and auditors.
“Any cases that involved an action as receiver or conservator and sought damages or restitution would be available” to the public, said Andrew Gray, an FDIC spokesman. The FDIC even has a page on its website devoted to posting settlement agreements, which it launched this year after drawing criticism for sometimes reaching settlements without publicizing them.
If the FDIC can do it, the overseer of Fannie and Freddie should, too. There is no good excuse for this secrecy.
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
To contact the editor responsible for this article: James Greiff at email@example.com