The Manhattan U.S. attorney’s office has announced a civil mortgage fraud lawsuit against Bank of America Corp., accusing the company of defrauding government-backed Fannie Mae and Freddie Mac to the tune of more than $1 billion.
The October 24 complaint, filed in U.S. District Court for the Southern District of New York, accused Bank of America and Countrywide Financial Corp. (before Bank of America bought it in 2008) of selling mortgages to Fannie and Freddie through a high-speed process that failed to include “quality checkpoints.” As a result, according to prosecutors, Fannie Mae and Freddie Mac bought thousands of defective residential mortgage loans that eventually defaulted.
“Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects,” U.S. Attorney Preet Bharara said in a statement. “These toxic products were then sold to the government sponsored enterprises as good loans.”
A Bank of America spokesman could not immediately be reached today for comment.
The process, called the “Hustle,” according to the U.S. attorney’s office, ran from at least 2007 to 2009. Countrywide and Bank of America were the largest providers of residential mortgages to Fannie Mae and Freddie Mac, which, according to prosecutors, don’t do pre-purchase loan review, relying on lenders’ representations.
Bharara noted that this case marked the sixth time in 18 months that his office had sued a major financial institutions for allegedly “reckless mortgage practices” leading up to the financial meltdown.
According to the complaint, Countrywide created the “Hustle” process, but it was continued after Bank of America acquired the company in 2008. Prosecutors claimed that mortgages sold through the program that later defaulted contributed to Fannie Mae and Freddie Mac’s “massive losses” during the financial crisis. In 2008, Fannie Mae and Freddie Mac were placed in conservatorship under the Federal Housing Finance Agency.
According to the court docket, the case was originally filed under seal in February. U.S. District Judge Jed Rakoff ordered it unsealed today.
Zoe Tillman can be reached at firstname.lastname@example.org.