The U.S. government has sued Bank of America for more than
$1 billion, charging it sold risky mortgages to Fannie Mae and Freddie
Mac, defrauding taxpayers in the process.
The civil suit, filed in a U.S. district court Wednesday,
charges that the bank, as well as a company it acquired in 2008,
originated home loans under a program called "The Hustle," aimed at
making loans as fast as possible while forgoing checks on their quality.
Those risky loans were then guaranteed by Fannie Mae and Freddie Mac,
and when they defaulted, it cost taxpayers more than $1 billion.
The suit alleges that Countrywide Financial began the
activity in 2007. When the home loan lender was purchased by Bank of
America in 2008, the practice continued through 2009.
"The fraudulent conduct alleged in today’s complaint was
spectacularly brazen in scope. As alleged, through a program aptly named
‘the Hustle,’ Countrywide and Bank of America made disastrously bad
loans and stuck taxpayers with the bill," said U.S. Attorney Preet
Bharara. "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,”.
Fannie and Freddie were originally created as independent
government-sponsored private enterprises, but were taken over fully by
the federal government in September 2008 as they teetered on the brink
of collapse. Through the end of 2011, the government had pumped $183
billion into the two entities to keep them afloat, and the Obama
administration has called for the entities to eventually be wound down
and replaced with a new housing finance system.
Countrywide recently attracted scrutiny on Capitol Hill
after it was revealed that several former and current members received
favorable mortgage terms under a VIP program organized by the lender's
former CEO, Angelo Mozilo. The lawmakers receiving the loans have
maintained they did not know they were receiving favorable terms, and
Mozilo has since been barred from heading public companies, and is
paying a $22.5 million penalty to settle charges he misled investors
while heading Countrywide.
The suit marks the second of its kind filed by Bharara
this month. Earlier in October, the U.S. filed a civil suit against
Wells Fargo, similarly alleging the bank wrongfully certified risky
mortgages as high quality before selling them to the Federal Housing
Administration, which was stuck with hundreds of millions of dollars in
losses when they defaulted.
And in September, New York Attorney General Eric
Schneiderman filed a suit against JPMorgan Chase, charging it with
widespread fraud in the marketing and selling of risky mortgage-backed
securities in the lead-up to the financial crisis that caused billions
of dollars in losses for investors. Schneiderman is also the head of
President Obama's task force charged with sniffing out mortgage fraud.
The banks facing those suits have vowed to fight the charges, and Bank
of America did not respond to an immediate request for comment.
