U.S. Finally Sues Bank of America for Mortgage Fraud
Bank of America faces a billion-dollar lawsuit from the federal government for selling bad mortgages to two financing entities that had to be bailed out following the financial crisis.
The U.S. Department of Justice, along with the inspector general of the Federal Housing Finance Agency (FHFA) and the special inspector general for the Troubled Asset Relief Program (TARP), filed a civil complaint in a New York federal court alleging that BofA sold defective residential loans to Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac later had to be rescued by the Obama administration with billions of dollars in taxpayer money after bad loans from BofA and other banks defaulted.
Some of the improper lending began with Countrywide Financial, which allegedly ran a home loan program known as the “hustle” before BofA took over the lender during the Wall Street crisis of 2007-2008. Internal Countrywide documents demonstrate that company executives bypassed existing safeguards that disqualified risky borrowers and instead pushed to generate large numbers of loans without regard to their quality. The Justice Department complaint accuses Countrywide of crossing the line into illegality by falsifying loan applications so that borrowers appeared to meet the standards set by Fannie Mae.
Buying Countrywide proved a financial strain on BofA, which may have to pay the government $1 billion in damages or more if the Justice Department wins its case.
The bank already has agreed to pay $2.4 billion to settle a shareholder lawsuit that claimed BofA executives lied to investors about the 2009 purchase of Merrill Lynch.
Preet Bharara, the U.S. attorney in Manhattan who is heading the case against BofA, said in a statement: “The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope.”
“This lawsuit should send another clear message that reckless lending practices will not be tolerated,” Bharara added. Earlier this month, Bharara sued Wells Fargo for concealing problems with 6,000 loans that cost the federal government $190 million when they failed.
However, as usual, no executives are being sued in the case, not even Countrywide’s CEO, Angelo Mozilo, who did have to cough up $22.5 million of his own money two years ago to settle charges brought against him by the Securities and Exchange Commission. As large as that amount seems, it actually represented only one-sixth of the personal profit he made through fraud and insider trading.
-Noel Brinkerhoff, David Wallechinsky
To Learn More:
U.S. Accuses Bank of America of a ‘Brazen’ Mortgage Fraud (by Ben Protess, New York Times)
Bank of America Sued by U.S. Over Mortgage Loan Sales (by David Glovin and Hugh Son, Bloomberg News)
United States v. Bank of America (U.S. District Court, Southern New York) (pdf)
Government Accused of Allowing Bank of America to Investigate Itself about Foreclosures (by David Wallechinsky and Noel Brinkerhoff, AllGov)
U.S. Sues Wells Fargo for Lying about “Seriously Deficient” Mortgages (by Noel Brinkerhoff, AllGov)
Bank of America Smacked with Foreclosure Fraud Lawsuits (by Matt Bewig, AllGov)
Bank of America Forecloses on Houses without Mortgages (by Noel Brinkerhoff and David Wallechinsky, AllGov)
If You Can Afford to Pay $67 Million, You Can Stay out of Jail…the Case of the Countrywide CEO (by Noel Brinkerhoff, AllGov)
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