The US filed a fraud lawsuit against Bank of America Corp, accusing it of causing taxpayers more than US$1 billion of losses by selling thousands of toxic mortgage loans to Fannie Mae and Freddie Mac.
Wednesday’s case, originally brought by a whistleblower, is the US Department of Justice’s first civil fraud lawsuit over mortgage loans sold to the big mortgage financiers, bailed out in 2008.
It also compounds the legal problems that Bank of America chief executive Brian Moynihan faces over the second-largest US bank’s disastrous July 2008 purchase of Countrywide Financial Corp, once the nation’s largest mortgage lender.
‘HUSTLE’
According to a complaint filed in Manhattan federal court, Countrywide in 2007 invented and Bank of America continued a scheme known as the “Hustle” to speed up processing of residential home loans.
The program, also known as HSSL for “High Speed Swim Lane,” operated under the motto “Loans Move Forward, Never Backward,” and tried to eliminate “toll gates” designed to ensure that loans were sound and not tainted by fraud, the government said.
The program removed underwriters from all but the riskiest loans and replaced them with loan specialists, previously considered unqualified even to answer borrower questions.
‘DEFECT RATES’
This led to “defect rates” approaching 40 percent, roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to “rebut” the problems being found, the government added.
Defaults and foreclosures soared, yet the bank has resisted buying back many of the defaulted loans from the scheme, which ran through 2009, the government said.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” US Attorney Preet Bharara said in Manhattan. “Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill.”
FALSE CLAIMS ACT
Wednesday’s lawsuit seeks civil fines, as well as triple damages under the federal False Claims Act, which the government has used several times in recent years against Wall Street.
Lawrence Grayson, a bank spokesman, said in response to the lawsuit: “Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters.”
“The claim that we have failed to repurchase loans from Fannie Mae is simply false. At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn,” he said.
SETTLEMENT
In February, Bank of America agreed to a US$1 billion settlement of False Claims Act allegations over home loans submitted for insurance by the Federal Housing Administration, in a case from the US Attorney’s office in Brooklyn, New York.
Since Moynihan’s predecessor, Kenneth Lewis, paid US$2.5 billion for Countrywide, the Charlotte, North Carolina-based bank has lost nearly US$40 billion on mortgage litigation and investor demands to buy back soured loans, Credit Suisse said on Oct. 5.
Some of these costs related to Merrill Lynch & Co, which Lewis bought at the beginning of 2009. Last month, Bank of America agreed to pay US$2.4 billion to settle a lawsuit accusing it of misleading investors about that takeover.
WASHINGTON’S INCENTIVES: The CHIPS Act set aside US$39 billion in direct grants to persuade the world’s top semiconductor companies to make chips on US soil The US plans to award more than US$6 billion to Samsung Electronics Co, helping the chipmaker expand beyond a project in Texas it has already announced, people familiar with the matter said. The money from the 2022 CHIPS and Science Act would be one of several major awards that the US Department of Commerce is expected to announce in the coming weeks, including a grant of more than US$5 billion to Samsung’s rival, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), people familiar with the plans said. The people spoke on condition of anonymity in advance of the official announcements. The federal funding for
HIGH DEMAND: The firm has strong capabilities of providing key components including liquid cooling technology needed for AI servers, chairman Young Liu said Hon Hai Precision Industry Co (鴻海精密) yesterday revised its revenue outlook for this year to “significant” growth from a “neutral” view forecast five months ago, due to strong demand for artificial intelligence (AI) servers from cloud service providers. Hon Hai, a major assembler of iPhones that is also known as Foxconn, expects AI server revenues to soar more than 40 percent annually this year, chairman Young Liu (劉揚偉) told investors. The robust growth would uplift revenue contribution from AI servers to 40 percent of the company’s overall server revenue this year, from 30 percent last year, Liu said. In the three-year period
LONG HAUL: Largan Energy Materials’ TNO-based lithium-ion batteries are expected to charge in five minutes and last about 20 years, far surpassing conventional technology Largan Precision Co (大立光) has formed a joint venture with the Industrial Technology Research Institute (ITRI, 工研院) to produce fast-charging, long-life lithium-ion batteries for electric vehicles, mobile electronics and electric storage units, the camera lens supplier for Apple Inc’s iPhones said yesterday. Largan Energy Materials Co (萬溢能源材料), established in January, is developing high-energy, fast-charging, long-life lithium-ion batteries using titanium niobium oxide (TNO) anodes, it said. TNO-based batteries can be fully charged in five minutes and have a lifespan of 20 years, a major advantage over the two to four hours of charging time needed for conventional graphite-anode-based batteries, Largan said in a
Taiwan is one of the first countries to benefit from the artificial intelligence (AI) boom, but because that is largely down to a single company it also represents a risk, former Google Taiwan managing director Chien Lee-feng (簡立峰) said at an AI forum in Taipei yesterday. Speaking at the forum on how generative AI can generate possibilities for all walks of life, Chien said Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) — currently among the world’s 10 most-valuable companies due to continued optimism about AI — ensures Taiwan is one of the economies to benefit most from AI. “This is because AI is