The federal government has filed a $1 billion civil mortgage fraud lawsuit against Bank of America and its predecessors, Countrywide Financial Corp. and Countrywide Home Loans Inc., for allegedly scheming to defraud Fannie Mae and Freddie Mac. This is the first civil fraud suit brought by the government concerning mortgage loans sold to Fannie Mae or Freddie Mac.
The lawsuit alleges that from at least 2007 through 2009, Countrywide and Bank of America (which acquired Countrywide in 2008) implemented a loan origination process called the ‘Hustle’ – a play on the acronym HSSL, for ‘High-Speed Swim Lane’ – which was designed to process loans at high speed and without quality checkpoints. As a result of the lack of quality control, the government alleges that the Charlotte, N.C.-headquartered bank generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, resulting in more than $1 billion dollars in losses and numerous foreclosures.
‘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,’ says Preet Bharara, the U.S. Attorney for the Southern District of New York. ‘The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope.’
The government is seeking damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Bharara's office is filing the lawsuit in conjunction with the Office of the Inspector General of the Federal Housing Finance Agency and the Special Inspector General for the Troubled Asset Relief Program.
Bank of America did not offer an immediate comment to the lawsuit.