Feds Go After Bank America
The US Government claims the Bank of America is responsible for selling thousands of poorly conceived mortgages, triggering over a billion dollars in losses for the federally backed financial institution, Fannie May and Freddie Mac. The charges include selling bad loans to investors or federal agencies, using fraudulent documents to foreclose on struggling homeowners and charging blacks and other minorities higher rates than whites.
In a civil lawsuit filed by the Justice Department, prosecutors state that Bank of America side-stepped safeguards designed to catch mortgage fraud, then resisted bearing the losses when the loans went bad, peddling them to Fannie Mac and Freddie Mac, who were expected to cover them instead. Bank of America’s legal problems are due, in large part, to its $2.5 billion purchase of Countrywide Financial in 2008, which was, at the time, one of the nation’s largest home lenders. According to the Justice Department’s complaint, Countrywide dreamed up a program known as the “Hustle”, designed to accelerate the sales of home loans.
Countrywide is accused of not only stripping the safeguards against fraudulent mortgages, but of awarding bonuses to employees based on the volume of mortgages they could issue. Additional charges state they removed highly qualified and experienced staff, replacing them with under-qualified junior employees, and failed to notify regulators of sky rocketing default rates. At this time, the charges are directed specifically against Bank of America, although Assistant U.S. Attorney Pierre Armand told U.S. District Judge Jed Rakoff, the US government might amend this complaint to include past and present bank employees. The judge has advised the prosecutors to amend their complaint by the year’s end.
Lenders argue that they have worked to resolve old mortgage issues, but cannot be expected to compensate everyone who claimed losses due to the economic downturn. They further state that the mounting number of cases, plus new regulations coming into effect next year will make it harder to issue loans, leaving less available credit for the still shaky housing market.
The case, along with dozens of others, will be brought before court within the next twelve months, culminating the government’s efforts to punish banks deemed responsible for the housing crisis that triggered an economic collapse.