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Judge orders Bank of America to pay up for Countrywide’s Hustle

Aug 03,2014  Breaking News  Comment: 0

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New York City, New York – (StockNewsDesk) – 08/03/2014 — Bank of America has been ordered to pay approximately $1.3 billion in penalties for mortgage fraud committed by Countrywide, a company that it bought after the financial crisis, in an attempt to save it from collapsing amidst the plethora of risky mortgages it had made. BofA has been ordered to pay the amount in penalties for defective mortgage loans sold to Fannie Mae and Freddie Mac in the build-up to the 2008 financial and sub-prime mortgage crisis. Countrywide and an ex-executive, Rebecca Mairone, were found liable by a jury in Manhattan federal court last year for selling thousands of bad loans to the two government-sponsored enterprises, Fannie Mae and Freddie Mac. The now ex-executive Mairone was ordered to pay $1 million at the time.

The loans were made under the High Speed Swim Lane program; that insiders referred to as “The Hustle” since little or no income verification was required for the issuance of loans. As the program picked up pace, Countrywide then sold the mortgages to the government-backed lenders Fannie Mae and Freddie Mac


The government had requested the maximum penalty of $2.1 billion, but U.S. District Judge Jed Rakoff did not deem it acceptable to be granted. He concluded that Fannie and Freddie paid Countrywide nearly $3 billion for the “High Speed Swim Lane” loans and hence reduced the penalty by 43% because experts for both sides believed that more than 57% of the loans were of “acceptable quality.”


Bank of America maintains that it should pay much less than what the Justice Department was seeking and said it had lost money on the loans in question. It also claimed that the Hustle or HSSL program ended before it bought Countrywide in 2008. The bank is currently assessing its options for appealing. According to the judge, the stated penalties aren’t intended to compensate victims but rather serve as a deterrent for wrongdoing. He also noted that the whistleblower who alerted the government to the program may be eligible to receive a portion of the penalty, but the office of U.S. Attorney Preet Baharara could not say if a payout would be made.

Clearly, shockwaves of this decision are being felt in the banking circles. Bank of America, Goldman Sachs Group, Inc. and other banks are now looking at weighing potential settlements with the Justice Department on a variety of mortgage matters in order to avoid other inflexible court rulings. In a way, banks are looking to hedge their risk by choosing the safer option after seeing how the cases are continuing to linger on even after more than five years of the financial crisis.Meanwhile, Bank of America and the Justice Department are also working on finding an out of court solution on their own after the bank raised its proposed offer to resolve probes into its sale of mortgage-backed bonds. Representatives of the bank were witnessed at the Justice Department last week to discuss the terms. An accord could be reached as early as this week while the settlement amount ranges from $13 billion to $17 billion. The discussions also aim to find an agreement regarding how much money will be paid in cash and how much in consumer relief.

During the time of Countrywide trial, the government argued that Countrywide committed a “simple but brazen” fraud as it misrepresented largely risky loans in 2007 and 2008 in the HSSL program. Furthermore, the government insisted that Countrywide issued defective mortgages under the program and eventually sold them to the government subsidiaries Fannie Mae and Freddie Mac.

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