A former Countrywide Financial executive testified Tuesday that the troubled Bank of America subsidiary wasn’t trying to defraud Fannie Mae and Freddie Mac when it sold them thousands of defective mortgages, according to a Bloomberg report.
“There was no scheme,” Rebecca Mairone, 46, testified. Mairone is the only individual named as a defendant in the government’s suit against Bank of America, Bloomberg reported. Government lawyers allege that Countrywide, which Bank of America acquired in 2008, knowingly sold shoddy mortgages to Fannie and Freddie between 2007 and 2009. The case is the first lawsuit brought by the federal government over mortgages to go to trial.
The Justice Department claims that Countrywide pushed the loans through a program called “High Speed Swim Lane” or “Hustle” – a program which streamlined the underwriting process by ignoring quality standards and paying employees based on the number of loans they processed.
"Hustle was not about quality," government attorney Pierre Armand told the court in his opening statement last month. "It was about speed. It was about volume. It was about profits."
According to Reuters, the DOJ estimates that Fannie and Freddie saw a $131.2 million net loss and an $848.2 million gross loss on the Countrywide loans. The government contends that Countrywide sold the loans to Fannie and Freddie knowing that many borrowers wouldn’t be able to repay them. But Brendan Sullivan, lawyer for the beleaguered lender, said no one at Countrywide ever made misrepresentations about the quality of the mortgages sold to Fannie and Freddie.
Whistleblower Edward O’Donnell, a former Countrywide official, disputes that claim. O’Donnell testified last month that the Hustle program and a program called New Customer Acquisition resulted in loans being approved before their quality could possibly have been vetted – including at least one loan, made in 2007, that went through the entire approval process in just 13 minutes, Bloomberg reported.
But Mairone testified that Countrywide assessed the risks of the Hustle program be4fore instituting it, according to Bloomberg.
“I felt like we had the proper planning in place in case something went wrong,” she said.
Countrywide has cost Bank of America more than $40bn in legal expenses, settlements and real-estate losses since the lender acquired the ailing company for about $2.5bn in 2008. “It is the worst deal in the history of American finance,” business professor Tony Plath told the Wall Street Journal in 2012. “Hands down.”