Bank of America’s Countrywide unit has been ordered to pay a total of $1.3 billion in penalties for selling thousands of bad mortgage loans to government sponsored mortgage finance companies Fannie Mae (FNMA) and Freddie Mac in the run-up to the 2008 financial crisis, Bloomberg News reports.
New York federal Judge Jed Rakoff issued the civil penalty against the Charlotte, North Carolina-based bank today in the first mortgage-fraud case brought by the federal government to go to trial.
The US government’s case against Countrywide, which Bank of America bought in July 2008, centered on a mortgage lending process called High-Speed Swim Lane, or “Hustle”, which was created in 2007 to eliminate lending safeguards so the bank could quickly originate mortgages. Thousands of loans sold to Fannie and Freddie, which packaged them into securities, later defaulted, leading to a large number of foreclosures and more than $1 billion in losses.
The report noted that while Rakoff didn’t grant the government’s request for the maximum penalty of $2.1 billion, due to the fact that 57%t of the loans were of ‘acceptable quality’, he concluded that Fannie and Freddie paid Countrywide nearly $3 billion for the ‘Hustle’ loans. Bank of America (BAC) had claimed it should have to pay $1.1 million at most.
“While the HSSL process lasted only nine months, it was from start to finish the vehicle for a brazen fraud by the defendants, driven by hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole,” Rakoff wrote.
The government alleges Countrywide’s High-Speed Swim Lane rewarded employees for the quantity rather than the quality of loans produced.
Shares of Bofa gained 2.02 percent to $15.67 at 2:22 p.m. ET.
Disclaimer: This page contains affiliate links. If you choose to make a purchase after clicking a link, we may receive a commission at no additional cost to you. Thank you for your support!