* Ex-CEO Mudd accused of misleading mortgage disclosures
* Judge says SEC plausibly alleged intent to mislead
* Lawyers for defendants not immediately available
By Jonathan Stempel
Aug 10 (Reuters) – Three former senior Fannie Mae executives lost their bid to dismiss a U.S. Securities and Exchange Commission civil fraud lawsuit accusing them of misleading investors about the company’s exposure to risky mortgages.
The executives, including one-time Chief Executive Daniel Mudd, contended that Fannie Mae had explicitly and accurately disclosed its exposure to subprime and low-documentation “Alt-A” home loans before the government seized the mortgage-finance enterprise in September 2008.
But U.S. District Judge Paul Crotty in Manhattan said the SEC plausibly alleged that Mudd, former Chief Risk Officer Enrico Dallavecchia and former Executive Vice President Thomas Lund materially misled investors by not disclosing exposures to risky mortgages that totaled more than $440 billion.
“They must have known that Fannie Mae’s disclosed subprime and Alt-A exposure calculations were materially misleading,” Crotty wrote on Friday. “Defendants’ conduct in making, or aiding others that made, these misstatements constitutes and extreme departure from the standard of ordinary care.”
RCO Hawaii LLLC, a law firm that successfully lobbied to loosen Hawaii’s foreclosure notice publication requirements last legislative session, has ties to a mainland attorney accused of inflating the cost of foreclosure notices.
The Oregon State Bar is investigating attorney David Fennell for allegedly inflating the foreclosure notice publishing costs that get passed on to lenders and homeowners trying to save their homes. Fennell co-owns Northwest Trustee Services Inc., whose company website profile says is associated with sister law firm RCO Hawaii, which conducts foreclosures in Hawaii and is the retained counsel for Fannie Mae in Hawaii. He also co-owns Foreclosure Expeditors/Initiators LLC, a Washington-based foreclosure support vendor that does business in Hawaii and nine other states.
Michael Dillard, an Oregon attorney with the firm Karnopp Petersen, made the complaint, alleging that Fennell knew Northwest Trustee and FEI were marking up publication costs for nonjudicial foreclosure sales notices printed in newspapers owned by Western Communications Inc. without disclosing the additional fees to clients. Fennell could face sanctions ranging from public reprimand to suspension of his legal license for a period from 30 days to five years or disbarment, said Oregon State Bar spokeswoman Kateri Walsh.
“It’s still under investigation,” Walsh said.
Sacramento and Elk Grove officials are exploring a controversial plan to use their powers of eminent domain to seize underwater mortgages from private investors and slash the amounts borrowers owe.
The proposal, pushed by a San Francisco-based group of financiers called Mortgage Resolution Partners, is meant to alleviate the drag on local economies of thousands of homes worth far less than buyers paid. It’s also meant to turn a handsome profit for investors who would advance the vast sums needed to buy the mortgages.
Read more here: http://www.sacbee.com/2012/08/11/4715792/sacramento-area-officials-explore.html#storylink=cpy