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Feds sue BofA for $1 billion over loans sold to Fannie, Freddie

October 24, 2012|By E. Scott Reckard
  • Bank of America Chief Executive Brian Moynihan's woes continued to mount Wednesday with a $1-billion lawsuit filed by the federal government on behalf of Freddie Mac and Fannie Mae.
Bank of America Chief Executive Brian Moynihan's woes continued… (Gerry Broome / Associated…)

The federal government has filed another mortgage-fraud lawsuit against Bank of America, contending that defective loans generated by the bank's Countrywide Financial Corp. subsidiary caused mortgage finance giants Fannie Mae and Freddie Mac to lose more than $1 billion.

A statement Wednesday from the office of U.S. Atty. Preet Bharara in New York said that after the subprime mortgage market collapsed in 2007, Calabasas-based Countrywide devised a loan-processing system called "Hustle" to "process loans at high speed and without quality checkpoints."

BofA used the Hustle system after acquiring Countrywide in 2008, according to the lawsuit, described as the Justice Department's first civil fraud suit over loans sold to Fannie and Freddie. The companies were seized by the government during the financial crisis in a bailout that has cost taxpayers $137 billion.

Document: The complaint filed against BofA

Federal prosecutors said that from 2007 through 2009, the Hustle system “generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over $1 billion dollars in losses and countless foreclosures.”

Bank of America did not immediately respond to requests for comment on the suit.

Lawsuits over Countrywide's aggressive lending and BofA's controversial acquisition of Merrill Lynch & Co. during the financial crisis have cost the bank tens of billions of dollars.

In one of the previous cases, the bank agreed to a $1-billion settlement of a lawsuit accusing it of defrauding the government on loans insured by the Federal Housing Administration.

The government has filed a flurry of civil cases against mortage lenders recently. The complaint against BofA Wednesday seeks damages and civil fines under the False Claims Act and a law passed in the wake of the savings and loan industry debacle, the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

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