News Gets Worse for Freddie Mac As Shareholders File Lawsuit

The Washington Post reports:

One day after reporting a $2 billion quarterly loss, Freddie Mac found itself the target of a shareholder lawsuit accusing the mortgage-funding giant of misleading investors about its risk-management practices.

The lawsuit in a Manhattan federal court seeks damages on behalf of investors, and it comes after a formal investigation by New York State Attorney General Andrew M. Cuomo into loan appraisals for banks that sold mortgages to Freddie Mac and its larger rival Fannie Mae.

The suit filed by the law firm of Coughlin Stoia Geller Rudman & Robbins alleges that Freddie Mac "made false and misleading statements concerning . . . its risk management and the procedures it put in place to protect the Company from problems in the mortgage industry," according to a statement on the firm's Web site. "Freddie Mac was not adequately implementing risk control measures. Moreover, the Company's procedures for appraisals led to many inflated appraisals, increasing the risk of defaults."

Cuomo earlier this month issued subpoenas to Fannie Mae of the District and Freddie Mac of McLean, and demanded they appoint independent examiners to review appraisals on the loans they purchased from banks. The attorney general's subpoenas also seek information on the due diligence performed by Fannie Mae and Freddie Mac and their evaluations of appraisals.

Even Freddie Mac can't prevent lawsuits.