The federal government today launched a lawsuit targeting Bank of America, claiming the huge bank generated thousands of defective home mortgage loans that were sold to Fannie Mae and Freddie Mac, leading to more than $1 billion in losses and "countless" foreclosures.
The lawsuit charges that Bank of America continued a new loan program called "Hustle" that was designed to process loans at high speed without quality checks. The government contends this practice was started by Countrywide mortgage, which was acquired by Bank of America in 2008.
“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, U.S. Attorney for the Southern District of New York. "The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill."
Bharara said Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects.
"These toxic products were then sold to the government sponsored enterprises as good loans," Bharaa said. "This lawsuit should send another clear message that reckless lending practices will not be tolerated.”
Countrywide, on its own and as part of Bank of America, was the largest provider of home mortgage loans to the government-sponsored Fannie Mae and Freddie Mac. The government charges that in 2007, as loan default rates were increasing across the nation, Countrywide removed checks that were designed to ensure mortgages were being properly issues.
To do this, the government contends Countrywide used unqualified and inexperienced clerks and did away with compliance specialists who were supposed to ensure loans had met all the necessary conditions for closing. The lawsuit charges that Countrywide and then later Bank of America knowlingly originated loans with escalating levels of fraud and other series defects that were sold to Fannie Mae and Freddie Mac.
In September 2008, as a result of massive losses from, among other things, the payment of guarantees to investors on loans that defaulted, Fannie Mae and Freddie Mac were placed in conservatorship under the Housing and Economic Recovery Act of 2008. Simultaneously with the creation of the conservatorships, the United States Treasury exercised its authority to purchase Fannie Mae and Freddie Mac stock. As of Dec. 31, 2011, the Treasury had provided $183 billion in funding to Fannie Mae and Freddie Mac through stock purchases.
Bank of America received $15 billion in federal funds through the U.S. Department of the Treasury’s Troubled Asset Relief Program (TARP) on Oct. 28, 2008; an additional $10 billion on Jan. 9, 2009; and $20 billion on Jan. 16, 2009. Bank of America repaid taxpayers’ combined $45 billion TARP investment in full on Dec. 9, 2009.
The lawsuit seeks civil penalties and damages for more than $1 billion in losses suffered by Fannie Mae and Freddie Mac for defaulted loans fraudulently sold by Countrywide and Bank of America.
Greed explains nothing Canada had none of these problems...inthe US, crisis was caused and incented by the Feds and social engineering
Well it was you who wrote "2008 was caused by failures of 30 years of deregulation" The MAJOR deregulation was caused by Clinton. That's a fact and not an opinion. You can't have things both ways
In my view, reader Joshua got it right. Regrettably, we learned the wrong lessons from 2008. All Wall Street did was make efficient that which should never have occurred in first place: Lending to people who shud not have gotten home loans. Recall that for the longest time, Wall Street risked partner money and not taxpayer money, and Dodd-Frank was unnecessary. We are always more cautious with our own money.