Arab Today, arab today us sues bank of america for 1 bn over bad mortgages
Last Updated : GMT 16:50:38
Arab Today, arab today
Arab Today, arab today

US sues Bank of America for $1 bn over bad mortgages

Arab Today, arab today

Arab Today, arab today US sues Bank of America for $1 bn over bad mortgages

Washington - Arabstoday

The United States sued Bank of America for at least $1 billion for allegedly dumping dodgy mortgages on state-controlled mortgage financers Fannie Mae and Freddie Mac. The government charged that Countrywide Financial and Bank of America, which took over Countrywide in 2008, ran a program to process mortgages and ship them to Fannie and Freddie as fast as possible with little effort spent on ensuring the loans were viable. The 2007-2009 program, nicknamed \"Hustle\", was run even as the US housing sector was melting down, and caused \"over $1 billion dollars in losses and countless foreclosures,\" the Justice Department said. To speed up the generation of new home loans and their sale to Fannie and Freddie, \"Countrywide eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated,\" the charges said. That led to \"rampant instances of fraud and other serious loan defects.\" It said Countrywide ignored warnings that the program \"would have catastrophic consequences on loan quality\" and concealed its own reports on the quality of the loans. After defaults began to soar in the loans, the charges said, Countrywide and Bank of America refused to buy them back or compensate the losses. \"The fraudulent conduct alleged in today\'s complaint was spectacularly brazen in scope,\" Preet Bahara, the US attorney in New York City, said in a statement. \"Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill,\" he said. \"This lawsuit should send another clear message that reckless lending practices will not be tolerated.\"  Bank of America made no immediate comment on the suit. BofA shares lost 0.5 percent in New York trade. Countrywide was, at the height of the US housing boom in the 2000s, the largest mortgage origination company in the United States. As did many mortgage lenders, it resold most of its home loans to Fannie and Freddie, which fund more than half of the home mortgages in the country. After the housing bubble burst over 2006-2009, both Fannie and Freddie nearly collapsed under the weight of millions of failing mortgages they took in from lenders. The government had to pump $183 billion into the two companies to keep them afloat, and estimates are that it will not recover much of the money. The case, the first the government has filed over toxic mortgages on behalf of Fannie and Freddie, is rooted in the requirements that originators properly vet any of the loans they rate as investment grade to sell on to the two state firms. The case said Bank of America is responsible because it knowingly assumed Countrywide\'s liabilities when it took the company over in 2008. Countrywide initiated Hustle in 2007 just as loan default rates were rising and Fannie and Freddie were tightening their loan purchasing requirements to reduce risk, the Justice Department said. \"According to internal Countrywide documents, the goals of the Hustle were high speed and high volume, where loans \'move forward, never backward\' in the origination process,\" the department said. \"To accomplish these goals, the Hustle removed necessary quality control \'toll gates\' that could slow down the origination process.\" \"Countrywide and later Bank of America knowingly originated loans with escalating levels of fraud and other serious defects and sold them\" to Fannie and Freddie, it said.

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