In the civil lawsuit Countrywide Financial, which Bank of America bought in 2008, is accused of selling thousands of toxic home loans to US government agencies Fannie Mae and Freddie Mac.
The lawsuit, bought by top federal prosecutor Preet Bharara, is a landmark case, marking the first time the justice department has gone after a bank suspected of selling bad mortgage loans to Fannie and Freddie.
According to the complaint, Countrywide invented the “Hustle” in 2007 to speed up the processing of residential home loans. Operating under the motto “Loans Move Forward, Never Backward,” the scheme eliminated quality control checks – dubbed “toll gates” – designed to ensure that loans were sound, the government alleges. According to the suit, the scheme resulted in “defect rates” that were roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to “rebut” the problems being discovered. The scheme ran until the end of 2009 and caused “countless” foreclosures, the suit claims.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” attorney Preet Bharara in Manhattan said in a statement. “This lawsuit should send another clear message that reckless lending practices will not be tolerated.”
Bank of America did not respond to requests for comment.