One of the top five banks in the nation, Bank of America, had a $1 billion lawsuit filed against them by one of the top federal prosecutors in Manhattan today.
U.S. Attorney Preet Bharara said Countrywide Financial, which was bought by Bank of America in 2008, gave out mortgage loans from 2007 to 2009 to borrowers without making sure the borrower could actually afford the loan. Bharara alleges Bank of America defrauded both Fannie Mae and Freddie Mac.
Prosecutors say Countrywide Financial started the mortgage scheme also known as “toxic mortgages”, Bank of America inherited it, kept the fraud alive and sold the “defective” loans without any warning to Fannie Mae and Freddie Mac.
Bharara said the lawsuit was filed in part to recover money that Fannie Mae and Freddie Mac lost from defaulted loans. Countrywide sold these loans to both Fannie Mae and Freddie Mac who were bailed out by the taxpayers several years ago.
The lawsuit states that Countrywide used a process called “The Hustle” an acronym for “High-Speed Swim Lane” meaning the loans were processed quickly without going through underwriting. Countrywide wrote loans for the “quantity” not “quality” and eliminated underwriters even for loans where borrowers were supposed to have verified
The loan processors quickly entered data into an automated system that would give the go-ahead so an underwriter would never see or verify the information. Loan processors had very little guidance and checklists were eliminated.
The loan processors received bonuses based solely on how many loans they could process each day.
The lawsuit alleges Countrywide executives were well aware of the loan processing problems. In 2008, 57% of the “Hustle” loans were in default. Countrywide, and later, Bank of America sold thousands of these “Hustle” loans to Fannie Mae and Freddie Mac. Fannie and Freddie relied solely on the bank’s statements that the loans met certain
This lawsuit comes on the heels of another lawsuit Bharara filed against Wells Fargo last week. Wells Fargo is the largest originator of home loans. That lawsuit alleges the bank’s failure to underwrite more than 100,000 loans for the Federal Housing Administration (FHA) insurance. U.S. prosecutors accused Wells Fargo of lying about the quality of the
mortgages it handled under the federal housing program and that they recklessly issued mortgages and made false certifications to the FHA.
Two other banks involved in toxic mortgages have settled already. Deutsche Bank has paid more than $200 million to resolve civil fraud charges and Citigroup’s CitiMortgage unit settled claims for $158 million.
Bharara used an obscure law called the Financial Institutions Reform, Recover, and Enforcement Act passed in the late 1980’s giving the government broad authority to bring civil claims and seek financial penalties against federally insured banks.
Despite these civil actions against the large banks, the Justice Department has brought very few criminal cases against banks and their executives tied to mortgage fraud and toxic loans. The department said cases are difficult to prosecute because they require proof of intent to defraud.
The lawsuit against Bank of America is the first civil fraud suit brought by the Justice Department concerning loans that were later sold to Fannie Mae and Freddie Mac.
Wells Fargo has denied the prosecutor’s accusations and Bank of America has yet to respond.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/ tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all you.