News

Fed Alleges Mortgage Fraud, Sues Bank of America for $1 Billion
10-31-12 - Bank of America was hit with a $1 billion civil mortgage fraud lawsuit Oct. 24 in which Manhattan U.S. Attorney Preet Bharara alleged the bank ran a scheme to defraud Fannie Mae and Freddie Mac, USA Today reported.

According to the lawsuit, Countrywide Financial, which was purchased by Bank of America in 2008, ran a program known internally as “Hustle” or “High Speed Swim Lane,” which pushed mortgages through the approval process without checking for fraud, misstatements and inaccuracies or missing information.

Bharara’s lawsuit, filed in U.S. District Court in New York, is the sixth such case filed against the nation’s biggest banks in the last 18 months by the Manhattan U.S. Attorney’s office.

Lawrence Grayson, spokesman for Bank of America, told USA Today that “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.”

However, federal prosecutors said that it was fraud and not a bad economy that caused Bank of America to allegedly sell unqualified mortgages to Fannie and Freddie in order for them to be packaged into mortgage-backed securities. The lawsuit alleged that Countrywide employees were given bonuses between 2007 and 2009 based on the volume of mortgages they processed. The suit also claimed that the bank’s executives were aware of the faulty mortgages being issued; a January 2008 internal review indicated that 58 percent of “Hustle” loans defaulted, USA Today reported.

The complaint also noted that Fannie and Freddie failed to review the mortgages before purchase, instead relying on the bank’s statements regarding the quality of the loans.

Bank of America has denied all allegations.

Read the full article here.