Bank of America Ordered to Pay $1.3 Billion for Countrywide Fraud
Ren Benavidez | | Jul 31, 2014 04:33 AM EDT |
(Photo : REUTERS/Rick Wilking)
The Bank of America was ordered to pay US$1.3 billion by a federal judge on Wednesday for taking part in selling risky mortgages to government-sponsored enterprises, Fannie Mae and Freddie Mac.
U.S. District Judge Jed Rakoff imposed the civil penalty against Countrywide Financial, a mortgage lender owned by Bank of America, in the first mortgage fraud lawsuit that the federal government has ever brought into trial.
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The jury found in 2008 that Countrywide and Rebecca Mairone, a former Countrywide executive, guilty of selling thousands of defective mortgage loans to the two enterprises. The judge imposed a US$1 million penalty for Mairone.
U.S. Attorney for the Southern District of New York Preet Bharara said it was the first time that a bank and its executives have been ordered to pay a civil penalty for a mortgage fraud case.
Bharara added that the ruling showed that mortgage fraud is not a common result of doing business in the hopes of getting profit. It is something that should be taken seriously.
The case focused on Countrywide's mortgage lending program called "High Speed Swim Lane," "HSSL" or "Hustle" which misinterpreted the risky loans it processed.
Investigation revealed that HSSL prioritized quantity over quality, which emphasized and produced more loans without checking if the loan is defective or not.
The HSSL program only lasted nine months, but according to Rakoff, "it was from start to finish the vehicle for a brazen fraud by the defendants."
Rackoff added that Bank of America and its Countrywide unit was motivated by gain and profit and didn't consider the damages it brought to the financial world and not just its victims.
Bank of America Spokesperson Lawrence Grayson said the imposed penalty of US$1.3 billion "simply bears no relation to a limited Countrywide program that lasted several months." He said they are looking into options to appeal the ruling.
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