The US government wants Bank of America Corp to fork over $863.6 million in damages after a federal jury found it guilty of selling subprime mortgages, the defective securities largely responsible for triggering the Great Recession in 2008.
The US Justice Department argued that Countrywide, which was
bought by Bank of America in 2008, committed fraud by selling
shoddy home loans over a two-year period to Fannie Mae and
Freddie Mac, two government-sponsored enterprises (GSEs) designed
to enhance the flow of credit to targeted sectors of the economy.
The government also demanded penalties against Rebecca Mairone, a
former executive at Countrywide unit who was cited in the lawsuit
as having repeatedly ignored warnings about the "Hustle,"
otherwise known as the "High Speed Swim Lane."
In an effort to squeeze as much business as possible from a
steadily eroding housing market, Countrywide extended loans to
low-income families with little hope of meeting the demand of a
fluctuating monthly payment. As a result, Countrywide was cited
for placing too much emphasis on the sheer volume of loans, not
the quality.
“Countrywide eliminated every significant checkpoint of loan
quality and compensated its employees solely based on the volume
of loans originated, leading to rampant instances of fraud and
other serious loan defects, all while Countrywide was informing
the GSEs that it had tightened its underwriting guidelines,”
the Justice Department complaint against Bank of America stated.
The amount of the penalty is based on gross losses Fannie Mae and
Freddie Mac incurred on the Countrywide mortgages, the government
said.
Mairone, who worked at Countrywide and Bank of America from 2006
until 2012, is now employed with JPMorgan Chase & Co. She has
denied any wrongdoing.
No criminal charges have been filed against Mairone or any other
individual in connection with the alleged misconduct.
Bank of America is scheduled to respond to the government's
penalty request by November 20.
Although critics are already deriding the fine as a mere “drop
in the bucket” compared to the damage wrought to the economy
as a result of the faulty mortgage scheme, the Justice Department
said the penalties would “send a clear and unambiguous message
that mortgage fraud for profit will not be tolerated."
The US government introduced two stimulus packages totaling
nearly $1 trillion during 2008 and 2009, while the Federal
Reserve has attempted to pump up the global economy by printing
upwards of $600 billion while keeping interest rates at record
lows.
Bank of America, meanwhile, contends that the penalty is
excessive since it only acquired Countrywide in 2008, the same
year that the US housing bubble burst with global repercussions.
"We believe the filing overstates the volume of loans and the
appropriate measure of damages arising from one narrow
Countrywide program that lasted several months and ended before
Bank of America acquired the company," Lawrence Grayson, a
spokesman for the bank, said Saturday.
Bank of America paid $2.5 billion for Countrywide, but analysts
have said that purchase has since cost the bank tens of billions
of dollars in litigation costs.
In its filing, the Justice Department refrained from suggesting
an amount to fine Mairone until after it examined a financial
disclosure form she provided Friday. Her lawyers, meanwhile, have
pledged to argue against any penalties.
"We intend, in our filing, to argue against the imposition of
any penalty," Marc Mukasey, Mairone's lawyer, said in an
email Saturday, Reuters reported.
Penalties will be assessed by US District Judge Jed Rakoff, who
presided over the four-week trial in Manhattan.