Bank of America has been ordered to pay a $1.27 billion penalty for fraud resulting from a jury’s ruling in a U.S. District Court that the bank was liable for the sale of defective loans to government-controlled mortgage companies Fannie Mae and Freddie Mac by the former Countrywide Financial Corp. through its “hustle program.” The “hustle” lawsuit was filed by prosecutors in the U.S. attorney’s office in Manhattan against Bank of America in 2012. It was alleged that the company urged workers to churn out loans with little regard for quality. After the jury’s ruling against Bank of America, U.S. District Judge Jed Rakoff ordered Bank of America to pay the $1.27 billion penalty.
As we have previously reported, in July 2008, Bank of America purchased Countrywide Financial Corp. to create the nation’s leading mortgage originator and servicer. Bank of America is the second-largest bank in the United States and focuses on home lending, serving as the leading source of mortgages for the American consumer. The “hustle” lawsuit against Bank of America involved Countrywide’s mortgage lending program known as “Hustle” or the “hustle program,” “High Speed Swim Lane,” or “HSSL,” where mortgage products were moved quickly with little regard for quality.
The case was originally brought by whistleblower Edward O’Donnell, who is a former Vice President at Countrywide. The allegations were based upon the company’s fraudulent practices whereby it not only encouraged but rewarded its employees for producing more and more loans and eliminating checkpoints that are designed to ensure the quality of the loan.
The company’s “hustle program” included loans that produced losses after being sold to investors. While this program ended in May of 2008, lasting only nine months, it caused a great deal of harm to its victims and has played a big role in the financial system crisis. According to Judge Rakoff, this nine-month fraudulent “hustle” for profits caused investors and mortgage giants Fannie Mae and Freddie Mac to pay for 17,611 defective loans, totaling $2.96 billion paid to Countrywide.
The jury also found Countrywide executive Rebecca Mairone liable for the sale of the defective loans. Ms. Mairone, the only individual who was found liable by the jury, was ordered by the Judge to pay $1 million in penalties. Ms. Mairone was found to have had a leading role in the fraudulent sale of the loans. Marc Mukasey, a lawyer who represented Ms. Mairone, had this to say in an interview with Reuters:
Rebecca never intended to defraud anyone and never did defraud anyone. Unfortunately, more powerful people chose her as a scapegoat because they thought she was an easy target. We will fight on to clear her name.
Judge Rakoff said in his opinion that the “hustle program” was a “vehicle for a brazen fraud” and was “driven by a hunger for profits and oblivious to the harms” it inflicted on investors and the financial system as a whole. The Judge’s $1.27 billion penalty was about 60 percent of the $2.1 billion the government was seeking in penalties against Bank of America. It’s obvious, and widely recognized, that Countrywide and Bank of America’s fraudulent behavior contributed to the financial crisis, which ultimately falls on the shoulders of taxpayers. Steve A. Linick, the Inspector General of the Federal Housing Finance Agency, stated:
This type of conduct is reprehensible and we are proud to work with our law enforcement partners to hold all parties accountable.
Hopefully, we will eventually see a slowdown in corporate fraud in this country. But when you consider how truly bad things have been especially in the financial world, it’s obvious that there is much more work to be done. Regulation must be much stronger and effective and the court’s open to deal with the bad guys in Corporate America. Our firm has a section staffed with lawyers and support staff who deal with corporate fraud on a regular basis.
If you need more information on this subject contact Alison Hawthorne, a lawyer in our Consumer Fraud Section, at 800-898-2034 or by email at Alison.Hawthorne@beasleyallen.com.
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