Bank of America: Convicted of Fraud

October 24th, 2013
in econ_news, syndication

Econintersect: The legacy of Countrywide Financial, acquired by Bank of America during the financial meltdown in 2008, continues to pay negative dividends.   A federal court jury in New York found BofA liable for losses incurred by Fannie Mae and Freddie Mac on sales to them of shoddy mortgages in 2007 and 2008.  The U.S. Department of Justice will seek up to $848.2 million from BofA, according to Reuters.  The jury also found liabilty for Rebecca Mairone, a former Countrywide executive.


Follow up:

The gross losses suffered by the two government owned mortgage giants were $848.2 million and the Department of Justice may seek full resitition in the penalty phase which will be completed 05 December.

Some specifics from Reuters:

The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007.

The Justice Department contended that fraud and other defects were rampant in HSSL loans because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume and speed.

The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.

About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.

According to The Washington Post, the scope of the trial was narrowed before it began:

The court threw out charges that the bank violated the False Claims Act, which would have enabled the Justice Department to seek triple the amount in damages. A judge also found that Bank of America did not continue Countrywide's alleged misconduct when it purchased the lender in 2008.

A former Countrywide employee whistleblower, Edward O'Donnell could earn up to $1.6 million for participating in this case.

Appeals by Bank of America are expected to focus on the fact that it can be considered a victim of the actions alleged and also that it should not be held responsible for losses that occurred for others because of an economic downturn.

Hat tip to Elliott Morss for an early alert on this verdict.


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