Federal officials have filed a $1 billion lawsuit against Bank of America for defrauding the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The complaint, filed in federal court in Manhattan, alleges that Bank of America and its predecessor – Countrywide Financial – implemented a new loan origination process called “the Hustle,” which was intentionally designed to process loans at high speed and without quality checkpoints.
It was alleged further that the “Hustle” generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted. This was said to have caused over $1 billion dollars 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. Preet Bharara, U.S. Attorney in Manhattan, had this to say about the lawsuit:
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. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. Through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill. Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized 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.
I believe this litigation will be successful. I also am convinced that the American people are sick and tired of all the corruption we have witnessed over the past several years by the big banks in the banking industry. The Justice Department should be commended for its actions in the attempt to clean up the industry.
Source: Corporate Crime Reporter
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