The US government has sued Bank of America for USD 1 billion on allegations of a multi-year mortgage fraud.
In a complaint filed in a New York court, the Department of Justice alleged that from 2007 through 2009, Countrywide, and later Bank of America after it acquiring Countrywide, implemented a new loan origination process called the Hustle, which was intentionally designed to process loans at high speed and without quality checkpoints.
This generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over USD 1 billion in losses and countless foreclosures.
This is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac.
"For the sixth time in less than 18 months, this office has been compelled to sue a major US bank for reckless mortgage practices in the lead-up to the financial crisis," said US Attorney Preet Bharara.
"Countrywide and Bank of America systematically removed every check in favour of its own balance ¿ they cast aside underwriters, eliminated quality controls, incentivised unqualified personnel to cut corners and concealed the resulting defects.
"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,” Bharara said in a statement.
This is an act of tiny margins relative to the size of the organisations and relative to the fraud committed, William K Black, a former bank regulator who teaches economics and law at the University of Missouri, told The Washington Post. "Prosecutors can't argue that these cases will serve as a deterrence when there have been no criminal indictments of senior executives," he said.
"At some point, Bank of America can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn," said the Bank of America spokesman, Lawrence Grayson.
Bank of America "acted responsibly to resolve legacy mortgage matters", Grayson said.
"The claim that we failed to repurchase loans from Fannie