The US government sued Bank of America Corp, seeking to recover more than 1 billion dollars of losses it said resulted from selling "toxic" mortgages to government-sponsored enterprises.
The second-largest US lender and its Countrywide Financial unit cut corners to process home loans at high speeds and sold defective and fraudulent mortgages to Fannie Mae and Freddie Mac, the US Justice Department said in a complaint filed Wednesday in federal court in Manhattan.
"The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope," Manhattan US Attorney Preet Bharara said. "As alleged, through a programme aptly named 'the Hustle,' Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill."
The suit covers loans made from 2007 to 2009.
Such lending practices sparked the 2007-2008 financial crisis when the US housing bubble burst. The bubble was created when easy credit drove up property purchases and prices. In the rush to reap the benefits of the sales boom, lenders pumped money to risky borrowers, resulting in subsequent high default rates.
The crisis soon spread overseas in the globalized banking and investment world, resulting in the collapse of financial institutions, slides on stock markets and the drying-up of credit.
Bharara alleged that Countrywide and Bank of America eliminated quality controls and hid the problems with their loans when selling them to Fannie Mae and Freddie Mac.
The two government-controlled mortgage giants, which guaranteed the loans, nearly became insolvent during the financial crisis and required a more than 180-billion-dollar taxpayer bailout.
"Countrywide and Bank of America systematically removed every check in favour of its own balance," Bharara said. "... These toxic products were then sold to the government-sponsored enterprises as good loans."
Bank of America has yet to comment on the complaint.
The Justice Department has now filed six suits against major US banks in less than 18 months over "reckless mortgage practices" that brought about the financial crisis. Wednesday's complaint was the first targeting loans sold to Fannie Mae and Freddie Mac.
Steve Linick, inspector general of the Federal Housing Finance Agency, called Countrywide's and Bank of American's conduct "reprehensible."
Countrywide was once the largest US mortgage lender. The complaint filed Wednesday accused Countrywide of implementing "the Hustle" and Bank of America of continuing it when it bought Countrywide in 2008.
Writedowns and settlements related to the financial crisis have since cost Bank of America billions of dollars. Forty billion dollars of those costs have stemmed from its Countrywide takeover.
Financial institutions are facing large numbers of lawsuits related to mortgage lending and the financial crisis. They have been filed by government agencies, states and stockholders.
Few criminal cases have been filed, particularly against leading executives.
Most Popular Stories
- Stop-Start Engines Save Gas, Reduce Emissions
- Shia LaBeouf Plea Deal, Alcoholism Treatment
- Ohio State Band Chief Fired After Probe
- Hispanic Leader Goes the Extra Mile
- U.K. Economy Surpasses Pre-Crisis Peak
- Visa, Amazon Results Drag Down the Street
- World Tensions Don't Curb Enthusiasm for Stocks
- Pandora Tumbles in Late Trading
- Morgan Stanley Ponies Up $275 Million to Settle SEC Charges
- Ricky Martin Joins 'The Voice ... Mexico'