Government: BofA Should Pay Billions, Not Millions, for Fraud

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Bank of America


In October, a federal jury found Bank of America (NYSE:BAC) unit Countrywide liable for damages related to the sale of thousands of toxic mortgages to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac), two government-sponsored mortgage finance agencies. It was the first mortgage-fraud case brought by the U.S. government to make it to trial, and for those seeking justice in the wake of the late-2000s financial crisis, it was a success.

The case dealt specifically with a mortgage origination program called the “Hustle” — High Speed Swim Lane, HSSL — that Manhattan U.S. District Attorney Preet Bharara, whose office brought the case against Bank of America, said “treated quality control and underwriting as a joke.”

In the case report, the plaintiffs describe the program: “In order to increase the speed at which it originated and sold loans to the GSEs, Countrywide eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud and other serious loan defects, all while Countrywide was informing the GSEs that it had tightened its underwriting guidelines. When the loans predictably defaulted, the GSEs incurred more than a billion dollars in unreimbursed losses.”

Initial damages of about $850 million were determined using the losses of Fannie Mae and Freddie Mac as a starting point, but on Wednesday night, the government changed the way it wants to determine the penalty. Instead of using losses sustained by the mortgage finance companies, it wants to use the gross gain made by Countrywide as a result of the program.

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