NEW YORK A shareholder sued Freddie Mac
FRE.N, its chief executive and others on Wednesday, alleging
the No. 2 U.S. home funding company did not take adequate steps
to protect itself from problems in the mortgage industry.
Scott Reimer, a shareholder, said in the complaint filed in
U.S. District Court in Manhattan that Freddie Mac, Chief
Executive Richard Syron and some other executives did not
adequately implement risk control measures to protect the
company from acquiring billions of dollars worth of mortgages
with poor underwriting standards.
"Moreover, the company's procedures for appraisals led to
many inflated appraisals, increasing the risk of defaults," it
said. "Ultimately, the company has reported billions of dollars
in losses, has been mentioned in investigations by the New York
attorney general and announced it must raise new capital to
meet regulatory requirements."
The suit, which asks for class action status, seeks to
represents purchasers of Freddie Mac shares between Aug. 1,
2006 and Nov. 19, 2007.
Freddie Mac said it did not comment on matters of
litigation. But it added that "accurate appraisals are
fundamental to our effective credit risk management, as well as
to the long-term success of the home buyers we are chartered to
"Freddie Mac has no incentive to accept inflated appraisals
on the loans we purchase and guarantee," it said in an e-mailed
statement. "Indeed, Freddie Mac has a long-standing commitment
to fighting mortgage fraud."
Government-sponsored enterprises Fannie Mae FNM.N, the
largest U.S. home funding company, and Freddie Mac have been
hit by mounting losses as home foreclosures continue to rise
and the credit crisis drains the value of mortgages they own.
On Tuesday, Freddie Mac reported a $2 billion net loss for
the third quarter and said it might slash dividends by 50
percent or use other means to boost its capital as the downturn
in the housing market worsens.
(Reporting by Paritosh Bansal; editing by Gary Hill and