Remember when YOU saved Fannie Mae and Freddie Mac? Well, apparently your generosity knows no bounds.
In response to taxpayer demands, the Justice Department is currently investigating whether there was any wrong doing leading up to the collapse of the mortgage industry. And naturally, executives at companies like Fannie Mae and Freddie Mac are scrambling to cover their asses hire defense counsel to protect them from potential criminal charges. So that’s their problem, right? Not exactly. Fannie Mae and Freddie Mac had promised to cover legal bills for those executives – and since the feds now “own” Fannie Mae and Freddie Mac, taxpayers may be on the hook for those defense bills. Only those who are convicted of wrongdoing are required to give the money back, assuming of course, that they have it to give back.
And it gets even worse. The contracts also require Fannie Mae and Freddie Mac to pay legal fees for executives who are the target of shareholder lawsuits. If shareholders are successful in proving that the executives acted improperly, the federal government could be on the hook for the pay-off. And who do you think will pony up for those settlements? Oh yeah. Taxpayers.
How bad could it get? Remember that Fannie Mac and Freddie Mac own or guarantee nearly half of all of the mortgages in the US. It could be HUGE. The companies have promised to pay legal fees for all current and former board members, executives and employees charged or investigated as a result of the Justice Department review.
Neither company has revealed whether it has already paid out fees on behalf of former executives since the takeover. But if 2005 is any indication, the fees could be steep. In mid-2005, Freddie Mac alone had paid $16.8 million in legal fees after it restated its 2003 earnings.
So the bailout just got a little bigger. Crazy, huh?
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