Federal prosecutors in Manhattan sued Bank of America for $1 billion on Wednesday, alleging the bank defrauded government-sponsored mortgage giants Fannie Mae and Freddie Mac.
U.S. Attorney Preet Bharara said in the complaint that Countrywide, which was purchased by the Charlotte-based bank, generated thousands of fraudulent home loans through a process known as the "Hustle," which involved processing home loans at high speed and without quality checkpoints.
The loans were sold to Fannie Mae and Freddie Mac and later defaulted, causing more than $1 billion in losses and numerous foreclosures, the U.S. attorney's office said in a statement.
"The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope," Bharara wrote. "Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill."
Bharara says this is the first civil fraud suit brought by the Justice Department concerning mortgage loans later sold to Fannie and Freddie.
"Countrywide and Bank of America systematically removed every check in favor of its own balance - they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects," Bharara said. "These toxic products were then sold to the government-sponsored enterprises as good loans."
Bharara said the Hustle program began under Countrywide in 2007 and continued after Bank of America bought the tottering lender in 2008. "After the merger, the Hustle continued unabated through 2009," Bharara said in a statement.
This is the sixth such suit the government has brought against banks. Bharara announced Oct. 9 that the government has sued Wells Fargo, alleging that the bank failed to follow underwriting rules on thousands of government-insured loans.
In February, the U.S. settled with Citigroup for $158.3 million and Flagstar Bank for $132.8 million. The government settled with Deutsche Bank and its subsidiary MortgageIT for $202.3 million in May. A suit against Allied Home Mortgage Corp. is ongoing.
Bank of America settled similar claims earlier this year in a side deal accompanying the $25 billion mortgage servicing settlement with state attorneys general and federal agencies. The Charlotte bank agreed to pay $500 million upfront, with the possibility of paying $500 million more if principal forgiveness benchmarks weren't met.
Bank of America didn't immediately return a phone call seeking comment.
Most Popular Stories
- Americans Still Pessimistic Despite Economic Growth
- Labor Day Travel Up, Gas Prices Down
- Bogdanovitch Delivers Laughs With 'She's Funny'
- U.K. Raises Terror Threat Level to 'Severe'
- Nintendo Launching 'Amiibo' Toy-game Franchise
- Canada, Russia Go to War (on Twitter)
- Parra Joins Exclusive Club of Hispanic CEOs
- Apple to Unveil New Items on Sept. 9
- Axxis Solutions Appoints Benites as CEO
- Obama Puts Ukraine Violence on Russia