(Reuters) – The United States filed a civil mortgage fraud lawsuit against Bank of America Corp, accusing it of selling thousands of toxic home loans to Fannie Mae and Freddie Mac that went into default and caused more than $1 billion of losses.
Wednesday’s case, originally brought by a whistleblower, is the U.S. Department of Justice’s first civil fraud lawsuit over mortgage loans sold to Fannie Mae or Freddie Mac.
It also compounds the problems that the Bank of America, second-largest U.S. bank, has faced since its disastrous 2008 purchase of Countrywide Financial Corp, once the nation’s largest mortgage lender.
According to a complaint filed in Manhattan federal court, Countrywide in 2007 invented a scheme known as the “Hustle” designed to speed up processing of residential home loans.
Operating under the motto “Loans Move Forward, Never Backward,” mortgage executives tried to eliminate “toll gates” designed to ensure that loans were sound and not tainted by fraud, the government said.
This resulted in “defect rates” that were roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to “rebut” the problems being discovered, it added. The scheme ran through 2009 and caused “countless” foreclosures, it added.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” U.S. Attorney Preet Bharara in Manhattan said in a statement. “This lawsuit should send another clear message that reckless lending practices will not be tolerated.”
Bank of America did not immediately respond to requests for comment.
Since paying $2.5 billion for Countrywide on July 1, 2008, the Charlotte, North Carolina-based bank has lost nearly $40 billion on mortgage litigation and requests by investors to buy back soured loans, Credit Suisse estimated on October 5.
Some of these costs related to Merrill Lynch & Co, which Bank of America bought at the beginning of 2009.
Reuters has the full article
