“Clearly, the SEC’s current securities fraud (disclosure) cases against the CEO’s and CFO’s of Fannie and Freddie, provide strong evidence to support your point about the non-disclosure of NTM’s (nontraditional mortgages) pre-crisis. I had no idea that by June 2008 that roughly 57% of all mortgages in the U.S. were NTM’s and I sure didn’t have any idea that Fannie, Freddie, FHA, and VA owned, insured, or guaranteed 76% of these NTMs (via whole loans or securities)…
…That said, I feel strongly that these executives most likely did not commit securities disclosure fraud. Without getting into the securities laws, your big point about NTM’s (nontraditional mortgages) is amazing and right and would have helped everyone to understand the scope of the crisis once it was upon us in 2007 and 2008 (and to understand what caused it and prevent another post-crisis), but even if Fannie and Freddie’s disclosures had been clearer (pre-crisis), I do not believe it would have made a material difference in analysts, investors, rating agencies, Congress, etc. views about them or in preventing the crisis.
You say it yourself on pages 66/67 (and a lot of other places throughout your book):
“Moreover, while the bubble was growing and the investment banks were buying and securitizing large numbers of subprime loans, the homeownership rate in the United States was growing significantly with few delinquencies and defaults. The reasons for this were discussed earlier. If the SEC or any other regulator had attempted to stop the acquisition and securitization of subprime loans, it would have drawn strong opposition in Congress. Because bubbles suppress defaults, a courageous regulator who had both the data and the prescience to see what was coming would not have been able to show a critical Congress that the build-up of NTMs in the financial system was causing any appreciable increase in mortgage losses.”
I would also point out that my firm, IndyMac (NYSE: IMB) was nearly all private MBS and Alt-A, which was well-disclosed in our public filings (the SEC, who I beat in court on the facts and law, didn’t sue me for anything related to our core mortgage business disclosures or anything before a short period in 2008, after the crisis and its effect on us was so well known and after our stock price had already been crushed!!!) and the market rewarded us with a near record stock price at the end of 2006 (over $3 billion market cap), Moody’s upgraded us to investment grade in March 2007, and our banking regulators (the OTS) gave our board the results of our best CAMELS ratings and exam around that same time.
I would also note, we lived in an era where subprime lending had become very mainstream for major banks and financial firms. Just to name a few major transactions, Sandy Weill (and his right hand man, Jamie Dimon by the way!!!) used a Baltimore subprime lender….Commercial Credit….and parlayed that into Travelers and then Citicorp itself. And Mr. Weill liked subprime so much, he had Citi buy Associates (the largest subprime consumer lender in America at that time) for $31 billion in September of 2000!!! HSBC, one of the largest banks in the world, buys huge, U.S.-based subprime consumer lender Household International for $14 billion in November 2002. Another major subprime mortgage lender…was it Ameriquest or Americredit(???)….was the primary sponsor of major league baseball during this time period. In April 2004, GE Capital bought subprime mortgage lender WMC (formerly a subsidiary of Weyerhauser Co.) from Leon Black’s Apollo for $500 million, in April 2004. And on May 2006, Wachovia bought huge Option Arm (Alt-A) California-thrift, GoldenWest (World Savings) for $25.5 billion. Finally, as I have mentioned to you before, a group of sophisticated institutional investors led by TPG, at the late date of April 2008 (post Bear Stearns Fed bailout, with the crisis clearly known), looked at everything (both public and private) about major subprime and Alt-A mortgage lender and the largest U.S. thrift WAMU, and decided to invest/recapitalize WAMU for $7 billion, and lost it all in a matter of months when WAMU fails later that year, as the crisis worsens.
All of these, and many more (not to mention bubble/bust economic theory), I believe show that the idea that securities disclosure fraud (misleading or omitted disclosures) as an important cause of the crisis is completely bogus; a red herring. It’s not true and these types of allegations (made at virtually every major financial firm by either the government and/or private securities class action law firms), as far as I am aware, were never proven in a court of law.”
(April 13, 2015 Email from former Chairman and CEO of IndyMac Mike Perry to Peter J. Wallison, author of “Hidden in Plain Sight”)