US government sues Bank of America over 'brazen' loan fraud
25 October 2012
The US government has filed a fraud lawsuit against Bank of America Corp, for causing taxpayers over $1 billion in losses with thousands of toxic mortgage loans to Fannie Mae and Freddie Mac, quasi-governmental entities engaged in guaranteeing millions of home loans.
The case adds to the legal problems Bank of America chief executive Brian Moynihan would face over the second-largest US bank's disastrous July 2008 purchase of Countrywide Financial Corp, the largest mortgage lender at one time.
A complaint filed in a Manhattan federal court, alleges Countrywide in 2007 started and Bank of America continued a scheme known as the "Hustle" to expedite processing of residential home loans.
According to the government, the programme also called HSSL for "High Speed Swim Lane," went by the motto "Loans Move Forward, Never Backward," and was aimed at eliminating "toll gates" meant to ensure loans were sound and not tainted by fraud, the government said.
The programme did away with underwriters for most loans apart from those that were the riskiest and replacing them with loan specialists, earlier considered unqualified to even answer borrower questions.
Thanks to HSSL "defect rates" approached 40 per cent, roughly nine times the industry norm. However Countrywide kept Fannie Mae and Freddie Mac in the dark and even awarded bonuses to staff to "rebut" the problems being found, according to the government.