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Mortgage Fraud Trial Begins for Bank of America

Barring a last-minute settlement agreement, Bank of America is slated to stand trial for allegedly defrauding taxpayers via government-backed mortgages from Fannie Mae and Freddie Mac.

Specifically, the finance giant’s Countrywide arm, acquired by Bank of America in 2008, is alleged to have approved billions of dollars worth of government-backed mortgages that it knew to be deficient. The scam was known internally as the “Hustle.” When those mortgages inevitably went into default at the height of the housing crisis, it was taxpayers who were stuck holding the bill.

Our Miami foreclosure defense lawyers know that this is the first of what could be numerous trials involving banks accused of hawking defective mortgages.

The civil lawsuit was filed by the U.S. Justice Department back in 2012, It seeks more than $1 billion in damages to Freddie Mac and Fannie Mae. The bank has vowed to fight the claims, saying that it can’t be held responsible for losses that were incurred as a result of the economic downturn. (Never mind that the Great Recession was spurred in large part due to the housing crisis, which was primarily due to the actions od too-big-to-fail banks.)
The qui tam (whistle blower) case was made possible by former Countrywide Corp. Executive Edward O’Donnell. He alerted the government to a program within the organization that was deemed the “High Speed Swim Lane,” or “HSSL,” and later “Hustle.” Basically, as people began to default on mortgages en masse in 2007 (again, a result of being granted loans they couldn’t afford in the first place) Countrywide doubled down on its efforts to approve as many loans as possible, the government says. Rather than abiding by the more stringent guidelines being pushed by Fannie Mae and Freddie Mac, Countrywide initiated a process to eliminate loan quality checks and balances. It even went so far as to pay workers based solely on the volume of loans they produced, thereby creating an incentive to churn out as many loans as possible, regardless of whether they were financially sound.

Meanwhile, Countrywide was assuring the government it was tightening its loan procedures.

(Fun fact: The former chief operating officer who was reportedly overseeing this process, Rebecca Mairone, a co-defendant in this case, is now the managing director at JPMorgan Chase.)
The Justice Department has estimated that the gross loss due to Countrywide’s alleged fraud is in the neighborhood of $850 million, while the net loss caused by the materially defective loans was about $132 million.

The jury will be charged with determining whether the bank is liable for these losses, while the New York federal judge overseeing the case, O’Donnell v. Bank of America Corp., will be responsible for determining the resulting penalty, should the bank lose.

Previously, the judge rejected allowing this claim to move forward under the False Claims Act, but has instead allowed it to proceed under the Financial Institutions Reform, Recovery and Enforcement Act, which was passed in the late 1980s following the savings-and-loan crisis.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

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