Oct 25, 2012 No Comments ›› Pat Dollard
Excerpted from THE HILL: The U.S. government has sued Bank of America for more than $1 billion, charging it sold risky mortgages to Fannie Mae and Freddie Mac, defrauding taxpayers in the process.
The civil suit, filed in a U.S. district court Wednesday, charges that the bank, as well as a company it acquired in 2008, originated home loans under a program called “The Hustle,” aimed at making loans as fast as possible while forgoing checks on their quality. Those risky loans were then guaranteed by Fannie Mae and Freddie Mac, and when they defaulted, it cost taxpayers more than $1 billion.
The suit alleges that Countrywide Financial began the activity in 2007. When the home loan lender was purchased by Bank of America in 2008, the practice continued through 2009.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill,” said U.S. Attorney Preet Bharara. “These toxic products were then sold to the government sponsored enterprises as good loans.
“This lawsuit should send another clear message that reckless lending practices will not be tolerated,” he said.
Fannie and Freddie were originally created as independent government-sponsored private enterprises, but were taken over fully by the federal government in September 2008 as they teetered on the brink of collapse. Through the end of 2011, the government had pumped $183 billion into the two entities to keep them afloat, and the Obama administration has called for the entities to eventually be wound down and replaced with a new housing finance system.
Countrywide recently attracted scrutiny on Capitol Hill after it was revealed that several former and current members received favorable mortgage terms under a VIP program organized by the lender’s former CEO, Angelo Mozilo. The lawmakers receiving the loans have maintained they did not know they were receiving favorable terms, and Mozilo has since been barred from heading public companies, and is paying a $22.5 million penalty to settle charges he misled investors while heading Countrywide.
The suit marks the second of its kind filed by Bharara this month. Earlier in October, the U.S. filed a civil suit against Wells Fargo, similarly alleging the bank wrongfully certified risky mortgages as high quality before selling them to the Federal Housing Administration, which was stuck with hundreds of millions of dollars in losses when they defaulted.
And in September, New York Attorney General Eric Schneiderman filed a suit against JPMorgan Chase, charging it with widespread fraud in the marketing and selling of risky mortgage-backed securities in the lead-up to the financial crisis that caused billions of dollars in losses for investors. Schneiderman is also the head of President Obama’s task force charged with sniffing out mortgage fraud. The banks facing those suits have vowed to fight the charges, and Bank of America did not respond to an immediate request for comment.