U.S. sues Bank of America for $1B for mortgage fraud

NEW YORK The top federal prosecutor in Manhattan sued Bank of America (BAC) for more than $1 billion on Wednesday for mortgage fraud against Fannie Mae and Freddie Mac during the years around the financial crisis.

U.S. Attorney Preet Bharara said Countrywide Financial, which was later bought by Bank of America, churned out mortgage loans from 2007 to 2009 without making sure that borrowers could afford them.

"The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope," Bharara said in a statement. He said the suit was partly to recover money that Fannie and Freddie lost from defaulted loans.

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Bank of America had no immediate comment.

Countrywide sold the loans to Fannie Mae and Freddie Mac, which were left to pay for the loans when they defaulted, according to the lawsuit. Fannie and Freddie were effectively nationalized in 2008.

Fannie and Freddie buy mortgage loans from banks, package them into securities and sell them to investors. The idea is to free up banks to make more loans. If a loan defaults, Fannie and Freddie guarantee payments to the investors.

According to the lawsuit, Fannie and Freddie don't review the loans before they purchase them. Instead, they rely on banks' statements that the loans meet certain qualifications.

Bharara said the lawsuit was the first civil fraud suit brought by the Justice Department concerning loans that were later sold to Fannie and Freddie.

The suit also underscored how Bank of America's purchase of Countrywide in July 2008, just before the financial crisis, backfired severely.

Risky loans

Countrywide was a giant in mortgage lending, but was also known for approving exotic, even risky, loans. By 2007, as the market for subprime mortgages collapsed, Countrywide was anxious for revenue.

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[Jnicolus]

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[xhomeowner]

they should give all our homes back
free and clear

[bamalifejcc]

So what happens to those of us who have gone into forclosure due to a loan made by Countrywide, sold to Bank of America? This loan was made without an appraisal (Countrywide called to ask what the house was worth...no appraisal was done) have since lost my job and now the house is in forclosure. Tried to work with B of A but they were of NO help whatsoever. Is a class action suit possible? Seems to me the victim is not only B of A, but we home owners (or should I say homeless.)

[1yam250]

This was the biggest scam pulled on the American people in history and they got away with it. The Bush whitehouse and there wall st banker buddies got everbody onboard. The war was going bad and they had to come up with a way to keep the economy going. So they created a housing scam to keep the economy going. They all knew what the hell was going on. How the hell did so many people become crooks. The bankers, the SEC, the rating agencies,the loan companies, franie and freddie, allen greenspan. They all knew what the hell was going on. I caught onto that scam in Aug. 2007 and i am a nobody. The economy is still paying for it now and will be for some time to come. No one went to prison and for the people who are trying to blame the bad economy on obama you must be smoking crack.

[dman6015]

Finally, one of the "too big to fail" banks is going to get spanked. Just wish it was more than $1 Billion. For BoA, that's only a few days revenue.

[josephp5]

Well it's better than nothing, which is great news considering that nothing is what the Justice Department has done so far.

Countrywide most definitely was committing fraud with its loans back in 2005 and 2006. They were lying about the qualifications of the loan recipients in order to get the loans through and collect their commission. This is not just conjecture---Eileen Foster, a vice president at Countrywide, said on 60 Minutes that she was ready and willing to testify against her bosses that they were committing crimes, but no investigator ever got in contact with her.

It's important that this lawsuit go forward, because the banks and their Republican supporters have invented a cover story that is the exact opposite of the truth---they claim that excessive government regulations like the Community Resource Act FORCED these banks to make loans to unqualified people. This is of course ridiculous to anyone that remembers all the non-stop advertizing done by Countrywide and other companies at the time. And this lawsuit will help dispel the myth.

But it's disappointing that this is a civil suit---no CRIMINAL charges have been filed against anyone. No banker (like Angelo Mozilo, Countrywide's CEO) is at risk of going to jail. If an ordinary person was found to have flat out lied on official sworn documents, he would likely be facing criminal fraud charges and possibly jail time. There is a different standard of justice for mere mortals and bankers in the US.