Freddie Mac may have misled investors about its internal risk control procedures causing Freddie Mac to lose billions of dollars and eventually requiring that the federal government take over the company.
This is a securities fraud class action lawsuit charging Freddie Mac and certain of its officers and directors.
Federal Home Loan Mortgage Corporation (Freddie Mac) is a shareholder-owned company established by Congress in 1970 to support homeownership and rental housing.
The class action complaint alleges that during the Class Period, Freddie Mac made false and misleading statements concerning Freddie Mac's business, its risk management and the procedures it put in place to protect Freddie Mac from problems in the mortgage industry.
In fact, during the Class Period, Freddie Mac was not adequately implementing risk control measures. Moreover, Freddie Mac's procedures for appraisals led to many inflated appraisals, increasing the risk of defaults. Ultimately, Freddie Mac reported billions of dollars in losses, has been mentioned in investigations by the New York Attorney General and was taken over by the federal government.
On this news, Freddie Mac stock fell over $10 per share to close at $26.74 on November 20, 2007. According to the complaint, during the Class Period, Freddie Mac concealed the following information, which caused their statements to be materially false and misleading:
(a) Freddie Mac was not implementing sufficient risk management controls to protect Freddie Mac from acquiring billions of dollars worth of mortgages with poor underwriting standards, causing Freddie Mac to have an untenable amount of risky loans;
(b) Freddie Mac was not implementing controls to ensure that appraisals were done appropriately and to prevent collusion between lenders and appraisers, increasing the risk of defaults;
(c) Freddie Mac was not adequately reserving for uncollectible loans, causing its financial results to be misleading; and
(d) Freddie Mac had billions of dollars of bad loans which it would eventually have to write off, causing losses and capital deficiencies.
Name (Stock Symbol)
Federal Home Loan Mortgage Corporation (Freddie Mac) (FRE)
Freddie Mac engages in mortgage purchasing, credit guarantee, and portfolio investment activities in the United States.
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