Bank of America sued for alleged mortgage fraud

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NEW YORK (CNNMoney) -- The Justice Department is seeking $1 billion from Bank of America, alleging the bank committed fraud by selling defective mortgages from a program it says was known within the bank as "the Hustle."

Those mortgages were purchased by government-backed mortgage finance firms Fannie Mae and Freddie Mac, resulting in over $1 billion in losses for taxpayers and countless foreclosures, according to the complaint announced Wednesday by the U.S. Attorney for the Southern District of New York.

The suit alleges that "the Hustle" was a nickname for the bank's "High-Speed Swim Lane," or HSSL program, designed to streamline the mortgage origination process. But the government alleges it was "intentionally designed to process loans at high speed and without quality checkpoints, and generated thousands of fraudulent and otherwise defective residential mortgage loans."

The government says the program was started by mortgage lender Countrywide Financial, but continued after it was purchased by Bank of America in 2008. It ran through 2009, according to the suit.

"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," said U.S. Attorney Preet Bharara in a statement. "The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope."

Related: Latest in mortgage fraud -- flopping

Bank of America already agreed to an $8.5 billion settlement last year in which it paid other investors burned by fraudulent mortgage securities. Those investors included money manager BlackRock (BLK, Fortune 500), insurer MetLife (MET, Fortune 500), investment management firm PIMCO and Goldman Sachs (GS, Fortune 500).

But this is the first case involving Fannie and Freddie, which were the major purchasers of mortgage securities. Huge mortgage losses at the two firms forced a government takeover of both in September 2008.

"Countrywide and Bank of America...cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects," said 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."

Related: U.S. sues Wells Fargo over mortgage fraud

The suit charges that Countrywide's senior management was warned that removing safeguards on the loan origination process would result in "catastrophic consequences for loan quality," and that they did nothing to correct the problems with the program or the loans.

According to the suit, Countrywide's own quality control reports showed a 40% defect rate in some months, which is about 10 times higher than industry standard. But instead of addressing the problems with the loans, it gave employees bonuses for making them look better than they actually were.

Bank of America itself was being bailed out by U.S. taxpayers during some of the period that the alleged fraud took place. It accepted $45 billion in funds from October 2008 to January 2009.

But the bank is once again profitable, earning $2.4 billion in net income during the first nine months of this year even after being hit with $1.6 billion in litigation expenses in its most recent quarter. Last month, the bank settled a $2.43 billion class action shareholder lawsuit related to its 2008 acquisition of Merrill Lynch.

The bank did not immediately respond to requests for comment Wednesday. Shares of Bank of America (BAC, Fortune 500) were narrowly higher in midday trading. To top of page


First Published: October 24, 2012: 12:38 PM ET

Re: Bank of America sued for alleged mortgage fraud

we posted the same thing.

and will probably be the only two people who care

Re: Bank of America sued for alleged mortgage fraud

Posted by Ophelia

we posted the same thing.

and will probably be the only two people who care

Bank of America sued for alleged mortgage fraud

Not surprising to me at all. Too big to fail, IMO, means too big for anyone to actually be held accountable for our shady practices. Look how many homes that they've foreclosed on that they don't even hold the note to!

Color me surprised to see them actually being held accountable for something. I'd love to think that this will change their practices but I don't think that will happen. The bank is just TOO big and there's too much "left hand doesn't know what the right's doing" going on over there. I've heard so many horror stories from people who've had mortgages with them, it's sad.

Re: Bank of America sued for alleged mortgage fraud

Posted by Ophelia

we posted the same thing.

and will probably be the only two people who care

Bank of America sued for alleged mortgage fraud

Bank of America are crooks. I could tell stories about what they have done to us that would curl your hair. They prey on lower middle class people who can't afford to advocate for themselves. You will never hear me say I hate anything or anyone, but hate is one of the closet emotions I have for them. Grrrrrrrr.

Re: Bank of America sued for alleged mortgage fraud

Posted by Bearcat

Posted by Ophelia

we posted the same thing.

and will probably be the only two people who care

I find it very interesting as someone who has been (no longer, thankfully) in the position of defending banks in similar situations. I'm not sure what went on with CW/BoA specifically, but what a shitstorm.

Re: Bank of America sued for alleged mortgage fraud

So experts, please treat me as the novice on this that I am, now who would get this money if the lawsuit is successful? The US govt? Me for obtaining one of these said loans from Countrywide back in 2006?
I really am unclear where the money ends up. With investors for being defruaded?
TIA!

Re: Bank of America sued for alleged mortgage fraud

Re: Bank of America sued for alleged mortgage fraud

Me too!!!!!

Bank of America sued for alleged mortgage fraud

I hate them. I got a pretty big check from them last year with a letter pretty much stating they ripped us off at closing. They mess up our taxes every year. I just hate them

Re: Bank of America sued for alleged mortgage fraud

BOA Sucks!!

Re: Bank of America sued for alleged mortgage fraud

Posted by Ophelia

we posted the same thing.

and will probably be the only two people who care

Bank of America sued for alleged mortgage fraud

i work as a para in the real estate industry. so when you close your home and your working with your bank's attorney to get your loan closed - that's me. i had to see these loans being pulled throughk nowing this would happen and there was nothing i could do to stop it. so sad all around for all those people who were duped by this scheme.

Re: Bank of America sued for alleged mortgage fraud

I work at BOA. In mortgage origination--- please no flames.

I'm not in any way defending BOA. I will say this- on it's crusade to become the biggest & best- the bank made bad decisions- mergers and aquisitions it shouldn't have. CW was what we all (my coworkers & I) see as the single biggest mistake ever made by BOA. Cw's practices were horrible and very Shady. We inherited those issues. NOt saying BOA is not at fault...but there are a lot of peices to the puzzle.
Everyone complains about how hard it is to get a loan cleared to close now- it's because of these old shady pactices that guidelines are so much stricter now. BOA is trying to dig itself out of that hole. We can't give any more mortgages that we shouldn't, we can't have any issues with the loan post-closing because FNMA won't buy them. We certainly can't afford to keep them.

Also- BOA is always in the media...but these same issues are going on at the other major lenders...Wells/Citi/Chase. There are reasons BOA's are all over the meda.

Bank of America sued for alleged mortgage fraud

EDNY already did this last year, lol. Eastern District of NY cover Long Island and Brooklyn area

"The action isn't Bank of America's first False Claims Act suit. In February, Bank of America agreed to a $1 billion settlement of False Claims Act fraud allegations tied to Federal Housing Administration-backed loans brought by the Eastern District of New York. The bank settled without admitting wrongdoing. Three other large banks have agreed to pay a total of more than $490 million in similar cases, each accepting responsibility for "certain conduct."

Read more: http://www.foxbusiness.com/news/2012/10/24/us-files-civil-false-claims-act-suit-vs-bank-america/#ixzz2AK7atgdC

Re: Bank of America sued for alleged mortgage fraud