October 30, 2012
by Ethan A. Huff, staff writer
Just in time for the upcoming closing of the litigatory window for such cases, the U.S. Department of Justice (DOJ) has filed a new lawsuit against Bank of America (BofA) alleging that the banking giant fraudulently dumped billions of dollars’ worth of bad mortgages into the taxpayer-backed mortgage groups Fannie Mae and Freddie Mac during the early stages of the economic crisis.
According to CNN Money, the DOJ is seeking $1 billion in damages from BofA for making Fannie and Freddie the targets of “the Hustle,” a corrupt program allegedly launched by the bank to “process loans at high speed … without quality checkpoints,” which in turn “generated thousands of fraudulent and otherwise defective residential mortgage loans.”
The government has for years been trying to get major banks like BofA to buy back these shoddy mortgage securities, which ultimately led to a government takeover of both Fannie Mae and Freddie Mac back in 2008, but such efforts have been slow and somewhat unsuccessful. Meanwhile, taxpayers have repeatedly footed the bill not only for BofA’s reckless loan-dumping spree, but also for the government-initiated bailout of BofA, which awarded the company with at least $45 billion in taxpayer funds.
“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 Preet Bharara, one of the primary attorneys pressing the new case, in a recent statement. “The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope.”
Among the many details in the suit are accusations that both BofA and Countrywide Financial, the latter of which was purchased by BofA in 2008 for $4.1 billion, engaged in a comprehensive fraud scheme to deliberately process bad home loans. The scheme involved discarding legal underwriters, eliminating basic quality controls for ensuring valid loans, and rewarding company employees for illicitly covering up the mess.
“Countrywide and Bank of America … case aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects,” added Bharara about the suit. “These toxic products were then sold to the government-sponsored enterprises as good loans.”
Corrupt loan processors working for BofA also allegedly committed blatant illegal behavior by manipulating loan forms to illegitimately qualify unqualified borrowers for home loans. By early 2008, this and other shady practices by BofA led to a more than 500 percent increase in defective loans created by the bank.
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