Bank of America unit found liable for defective loans sale to Fannie Mae and Freddie Mac
25 October 2013
A jury has found Bank of America Corp's Countrywide unit liable for the sale of thousands of defective loans to Fannie Mae and Freddie Mac in the first mortgage-fraud case brought by the US government to go to trial.
A federal jury in Manhattan yesterday also found former Countrywide Financial Corp executive Rebecca Mairone, the only individual named as a defendant in the government lawsuit, liable for defrauding the US.
US district judge Jed Rakoff, presiding over the trial, told lawyers the amount of any civil penalty would be determined at a later date.
Assistant US attorney Pierre Armand called on the judge to levy a penalty of as much as $848 million, which represented the gross losses to Fannie Mae and Freddie Mac. He added, alternatively, Rakoff could fine Countrywide about $131 million, the estimated net losses to the two entities.
Rakoff set 5 December as the next date for hearing for further arguments involving the penalty and said he would be ready to rule on those matters by 31 December.
He added if he determined an evidentiary hearing was needed, lawyers were required to be prepared to proceed with expert witnesses during the first week in January.
Last year, the US joined a whistle-blower action against the lender brought by former Countrywide Financial Corp executive Edward O'Donnell.
According to US authorities, Bank of America and Countrywide, which the lender acquired in 2008, sold thousands of defective loans from 2007 to 2009 to the home-mortgage finance companies.
Assistant US attorney, Jaimie Nawaday, told the jury Tuesday, that it was a case about greed and lies. She said Countrywide was internally saying that the loans' quality was "in the ditch" even as it sold them to Fannie Mae and Freddie Mac "for a quick profit."
Lawyer for Countrywide, Brendan Sullivan told jurors that the US failed to prove Fannie Mae or Freddie Mac had been defrauded.
Government-sponsored entities which included Fannie Mae and Freddie Mac bought mortgages on single-family homes from lenders.
The US alleged that in a bid to maintain revenue in a sinking market for sub-prime mortgages, a division of Countrywide initiated a loan programme called High Speed Swim Lane, or HSSL, in August 2007.
According to O'Donnell, who testified during the trial, he had warned other Countrywide executives about the failure rate of HSSL loans.
Nawady said, the HSSL programme was all about speed and volume and not about quality. She added, quality was no more than a distraction.