Mortgage Fraud Charges May Apply to Bank of America Employees

by 27 Oct 2012

(TheNicheReport) -- The ongoing civil fraud case against Bank of America for allegedly selling toxic mortgage assets to government-sponsored mortgage investment companies could target individuals and bank employees. Prosecutors from the U.S. Department of Justice (DOJ) stated that the complaint against Bank of America for its alleged role in passing more than $1 billion in worthless loans to Fannie Mae and Freddie Mac could be amended to include present and former employees.

Fallout from Countrywide

The lawsuit involves mortgage loans originated by Countrywide Financial Corporation, a lender that became infamous over the poor quality of their subprime lending division. Countrywide was purchased at a time when Bank of America went on an acquisition spree that included investment banking firm Merrill Lynch. The Countrywide acquisition took place in 2008, the same year when the mortgage securitization excesses of the early 21st century came tumbling down and wiped out billions of dollars in equity from Wall Street. 

The Hustle

The DOJ complaint mentions an irrational scheme cooked up by Countrywide in 2007 and continued by Bank of America post-acquisition. The plan went by the colloquial term of “The Hustle” and even adopted a catchy motto: "Loans Move Forward, Never Backward." DOJ prosecutors claim that the Hustle resulted in a high rate of loan defects, which were concealed by Countrywide when packaging the mortgages for sale to Fannie Mae and Freddie Mac. By late 2008, the damage from these loans required Fannie and Freddie to be bailed out by the government at a deep cost to taxpayers. 

The False Claims Act

DOJ prosecutors have until the end of the year to amend the complaint and include the names of the individuals to be prosecuted for civil fraud charges. This lawsuit would not be the first time the False Claims Act is used to charge individuals in mortgage fraud cases. The Federal Housing Finance Agency filed over a dozen lawsuits in 2011 against 130 individuals on behalf of Fannie and Freddie.

The False Claims Act has already been used against Bank of America. Earlier this year, the bank agreed to a $1 billion settlement for its alleged role in passing bad mortgage loans to the Federal Housing Administration.



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