Bank of America mortgage fraud suit seeks $1 billion in damages

B of A branch

Another Bank of America mortgage fraud suit has been filed, as the government is seeking $1 billion in damages from fraudulent sales of mortgage to Freddie Mac and Fannie Mae. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The federal government has been cracking down lately against mortgage fraud in the housing finance industry, slapping huge firms with huge lawsuits. A recently-filed Bank of America mortgage fraud suit seeks $1 billion in damages for toxic loans sold to Freddie Mac and Fannie Mae.

Bank of America mortgage fraud suit a consequence of acquiring Countrywide

One of the most egregious actors in the misdoings of the mortgage finance industry is generally held to be Countrywide, which imploded and ultimately had to be purchased by Bank of America. Since then, B of A has been slapped with a number of lawsuits related to the misdeeds of the 2008 addition to the bank’s mortgage division.

Another such suit has just been filed by the U.S. Attorney of Manhattan, according to the New York Times, claiming mortgage fraud in a number of loans that Countrywide sold to federally owned but privately-run mortgage insurance houses Freddie Mac and Fannie Mae. The Bank of America mortgage fraud suit seeks $1 billion in damages.

Hustle and flow

The Bank of America mortgage fraud suit alleges that before and after Countrywide had been acquired and absorbed into the company, a program known as “High Speed Swim Lane,” according to the Washington Post, or “HSSL” or “hustle” was in place that essentially put mortgages on the fast track to federal backing without properly vetting the mortgages.

In essence, the program is claimed to have encouraged Countrywide and later Bank of America employees to overlook the quality of the mortgages, skipping a verification of the borrower’s income or  falsifying information and giving bonuses to employees who could get the most mortgages lent. The program, according to USA Today, is said to have lasted from 2007 to 2009, after Countrywide had been fully absorbed.

One applicant, in Miami, was said to be earning $15,500 per month but was later discovered to actually be earning $2,666 per month, and ended up defaulting in seven months. Another applicant’s $81,000 in debt wasn’t disclosed in documents and received a mortgage they defaulted on within a year.  Freddie and Fannie didn’t vet the mortgages before buying, relying on Countrywide and later Bank of America’s word.

Deny, deny, deny

Since Freddie Mac and Fannie Mae have essentially been placed under government conservatorship, the Justice Department is, by virtue of the Bank of America mortgage fraud suit, looking to reclaim $1 billion in losses incurred by the “hustle” program. The Justice Department also contends that the mortgages sold under the “hustle” program should have been repurchased, but Bank of America failed to do so.

The bank contends that the allegations are “simply false.” Meanwhile, many of the people who bought homes with these loans are no longer in them. According to USA Today, a 2008 study found that 57 percent of homeowners whose loans were in the “hustle” program defaulted.

Sources

New York Times

Washington Post

USA Today

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