Federal prosecutors sued Bank of America Wednesday for more than $1 billion for mortgage fraud against the government-sponsored Fannie Mae and Freddie Mac during the worst years of the housing crisis.
The civil suit charges that, beginning in 2007, Countrywide did not ensure that borrowers could repay their mortgages. It says Countrywide then sold those defective home loans to Fannie and Freddie, which later lost money when borrowers defaulted. Bank of America bought Countrywide in 2008, and the lawsuit says the fraudulent practices continued through 2009.
In a mortgage origination program referred to as "the Hustle," the lawsuit charges that Countrywide deliberately set out to sell defective mortgages quickly to Fannie and Freddie. Hustle was the shorthand name for "High-Speed Swim Lane," a company policy that encouraged loan processors to eliminate underwriting so the lender could process and sell as many mortgages as possible.
Bank of America has not yet commented on the lawsuit, which was brought by U.S. attorney Preet Bharara in New York City, the inspector general of the Federal Housing Finance Agency, which oversees Fannie and Freddie, and the special inspector general for the Troubled Asset Relief Program, or TARP.
Fannie and Freddie guarantee mortgages for investors and rely on the banks to make sure that loans meet qualifications. According to the lawsuit, Countrywide, and later Bank of America, concealed the true quality of the loans even after they knew in early 2008 that 57 percent of such loans were defective.
This is the first civil fraud suit brought by the Justice Department on behalf of Fannie and Freddie.
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