DOJ handed new weapon in fight against banks

by Ryan Smith21 Aug 2013

A federal judge has okayed the use of a rarely used law that the Justice Department is trying to use in lawsuits against major banks, according to a Reuters report.

The Financial Institutional Reform, Recovery and Enforcement Act (FIRREA) has enhanced subpoena power, a 10-year statute of limitations and a lower burden of proof than similar finance laws. The law was rarely asserted until recently, when it became the basis of litigation against several banks, including Bank of America and Wells Fargo, Reuters reported.

U.S. District Court Judge Jed Rakoff said in his ruling that a “straightforward application of the plain words” of FIRREA allowed the savings and loan-era law to be applied to the new litigation.

The ruling will encourage the government to go after “a wider range of targets in the financial services industry, and a much broader range of alleged misconduct, including potentially consumer fraud,” Andrew Schilling, former head of the civil division in the Manhattan U.S. Attorney's Office, told Reuters

The judge’s decision was handed down in the government’s case against Bank of America. The DOJ contends that Bank of America’s Countrywide Financial unit sold troubled mortgages to Fannie Mae and Freddie Mac.

The sales came as a result of a 2007 Countrywide program called “High Speed Swim Lane” – also known as HSSL or “hustle.” Prosecutors allege that Countrywide sped mortgages through the approval process by removing quality controls – which resulted in thousands of fraudulent or defective mortgages being sold to Fannie and Freddie, according to Reuters.

COMMENTS

  • by NoSpinJustTheFacts | 8/21/2013 10:05:21 AM

    When will the Barney Franks and Christopher Dodds be held accountable for their defective government policies to provide homeownership to the "under-served" which was code for bad credit and no money?

    Let's start with the cause (foundation) of the housing crisis before we begin going after the implementers of their "under-served" housing policy.

  • by Jon Anthony | 8/21/2013 11:28:55 AM

    @NoSpinJustTheFacts, CRA of 1977 had been in place for 3 decades without any negative underwriting issues or results. The facts are CRA was set up to prevent red lining discrimination practices. You highlighting this substandard issue as the foundation tells me your a Fox News watcher and you're only focused on the blame game of deflection & misdirection. So my point is what factors or regulations really changed the game ? The REAL FOUNDATION of the housing crisis was the political removal of the Glass-Steagall Act of 1933 which had in fact separated commercial banking FDIC assets from the highly speculative investment practices of US banks and Wall street firms. The development of banks leveraging capital requirements now at 30-1 into Credit Derivatives and Credit Default Swaps or Mortgage Back Security Pools is the real game changer which resulted in an estimated 71 Trillion in such derivatives products being sold globally and leading to the 2008 Fall out on Wall Street and created the present dangerous economic position of banks too big to fail and too big or powerful to jail.

  • by Ken | 8/21/2013 1:09:12 PM

    The basic idea here is to fill Government coffers by wresting financial settlements from the banks. The banks are just going to consider it a cost of doing business. It's a tax by another name. The costs will be passed on to the consumer.

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