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.
