US seeking $864 million from Bank of America

PAYING FOR IT::The government said that the thousands of Countrywide loans bought by BOA were sold at ‘break-neck speed’ without regard for the quality of application


Mon, Nov 11, 2013 - Page 15

US federal prosecutors want Bank of America (BOA) Corp to pay about US$864 million over losses incurred by the government after it bought thousands of home loans made by Countrywide Financial during the housing boom.

US Attorney Preet Bharara made the request in documents filed late on Friday with the US District Court in Manhattan.

A jury last month found Bank of America, which acquired Countrywide in 2008, liable for knowingly selling thousands of bad home loans to the government-run mortgage buyers, Fannie Mae and Freddie Mac, between August 2007 and May 2008.

The panel also returned the verdict against Countrywide and a former executive, Rebecca Mairone.

The trial related to mortgages the government said were sold at breakneck speed without regard to quality as the economy headed into a tailspin.

The government had accused the financial institutions of urging workers to churn out loans, accept fudged applications and hide ballooning defaults through a loan program called the Hustle, shorthand for high-speed swim lane, which operated under the motto, “Loans Move Forward, Never Backward.”

Bank of America, based in Charlotte, North Carolina, denied there was fraud.

Thousands of loans made through the Hustle program were sold to Fannie and Freddie, which packaged loans into securities and sold them to investors.

The companies were effectively nationalized in 2008 when they nearly collapsed from mortgage losses.

In the filing on Friday, Bharara asked the court to make the penalty on Bank of America equal to the maximum losses racked up from the Hustle program by Fannie and Freddie.

BOA spokesman Lawrence Grayson said on Saturday that the lender plans to respond to the government’s penalty filing before a Nov. 20 deadline.

“We believe the filing overstates the volume of loans and the appropriate measure of damages arising from one narrow Countrywide program that lasted several months and ended before Bank of America acquired the company,” he said.

Bharara also wants the court to impose a penalty on Mairone — who prosecutors say was the driving force behind the Hustle program — that is in line with her ability to pay.

Mairone’s lawyer, Marc Mukasey in New York, said on Saturday that he intends to file papers with the court arguing there should be no penalties imposed on his client.

Countrywide, once the country’s largest mortgage lender, played a major role in the collapse of the US housing market because of its heavy reliance on subprime mortgages.

Facing serious financial challenges, the company was acquired by Bank of America in 2008 in an all-stock deal valued at about US$4 billion.

In 2010, Bank of America agreed to pay US$600 million to settle class-action lawsuits claiming that

Countrywide officials concealed mounting financial risks as they loosened lending standards during the housing boom.

That same year, former Countrywide CEO Angelo Mozilo agreed to pay US$67.5 million to settle accusations by the US Securities and Exchange Commission that he had misled investors and engaged in insider trading.