A federal jury on Wednesday found Bank of America liable for defrauding Fannie Mae and Freddie Mac, according to a Bloomberg report. The case was the first U.S. lawsuit against a bank over defective mortgages to go to trial.
At issue in the case were millions of dollars in defective loans sold to Fannie and Freddie by the bank’s Countrywide unit. Former Countrywide executive Rebecca Mairone – the only individual named as a defendant in the case – was also found liable for the fraud.
According to prosecutors, Countrywide ran shoddy mortgages through a program known as “High Speed Swim Lane” or “Hustle,” in which underwriting standards were sacrificed for approval speed and volume. Thousands of the deficient mortgages were sold to Fannie and Freddie, which saw a gross loss of more than $848 million and a net loss of more than $131 million, according to Bloomberg. Countrywide, meanwhile, earned at least $165 million selling loans through the “Hustle” program.
Prosecutors said that loans processed under the program saw approval times reduced from 60 days to as little as 10 days, Bloomberg reported. The program also transferred the job of approving loans from trained underwriters to “loan specialists” who were little more than glorified clerks who lacked sufficient training, prosecutors maintained. The government’s star witness, former Countrywide official-turned-whistleblower Edward O’Donnell, said he repeatedly warned company officials about the failure rate of the loans, according to Bloomberg.
“The (‘Hustle’) program was all about speed and volume and not about quality,” Assistant U.S. Attorney Jaimie Nawaday said Wednesday during closing arguments. “Quality was no more than a distraction.”
U.S. District Judge Jed Rakoff, who presided over the trial, will determine any penalties, according to Bloomberg.