From The Wall Street Journal:

The investigation by the Securities and Exchange Commission into Fannie Mae and Freddie Mac is homing in on the extent to which the mortgage-finance giants adequately disclosed their exposure to subprime loans, according to people familiar with the investigation.

The agency on Friday sent a Wells notice to Daniel Mudd, the former chief executive of Fannie Mae. A Wells notice indicates that the SEC staff is preparing to recommend civil enforcement actions and gives individuals the opportunity to persuade regulators against such an action.

Similar notifications have been sent to at least two other officials who worked with Mr. Mudd at Fannie, according to people familiar with the matter. One current Freddie Mac executive and the company's former chief financial officer disclosed last month that they had received Wells notices.

News of potential civil charges against Mr. Mudd was reported earlier by Bloomberg News. Mr. Mudd is the highest-ranking official to have disclosed receiving such scrutiny in the investigation. He said in a statement that he plans to submit a written response to the SEC.

The SEC has yet to take a final decision on bringing enforcement action linked to the mortgage giants.

The agency is weighing whether to include charges against Fannie Mae and Freddie Mac—in addition to individuals—in any enforcement action, according to people familiar with the matter. They said the decision was complicated by the fact that any penalties would in effect be a charge on the American taxpayer. More here.