Justice Department Sues BofA for Over $1B, Alleging Mortgage Fraud
By: Esther Cho
The U.S. Department of Justice sued Bank of America for over $1 billion for alleged mortgage fraud related to the sale of loans to Fannie Mae and Freddie Mac, Manhattan U.S. Attorney Preet Bharara announced in a release Wednesday.
According to the release, the civil fraud suit is a first for the Justice Department for mortgage loans sold to the GSEs.
The lawsuit stems from origination practices from Countrywide, which BofA acquired in 2008.
According to the complaint, from 2007 to 2009, Countrywide implemented a loan process called the “Hustle,” which pushed loans through the origination process by eliminating quality checkpoints and by compensating employees based on the volume of loans originated.
For example, the complaint stated Countrywide eliminated the use of an underwriter for many high risk loans and instead used loan processors who previously weren’t even qualified to answer borrower questions.
The complaint further alleges Countrywide informed Fannie Mae and Freddie Mac that it had actually tightened its underwriting guidelines during this time. As a result, the complaint stated thousands of defective loans were sold to Fannie Mae and Freddie Mac, resulting in over $1 billion in losses and loans that went into default.
“For the sixth time in less than 18 months, this Office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis,” said Bharara.
Bank of America spokesperson, Lawrence Grayson, said the bank “has stepped up and acted responsibly to resolve legacy mortgage matters,” further adding “the claim that we have failed to repurchase loans from Fannie Mae is simply false.”
“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,” Grayson said.
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