True Stories: Hybrid, eNote and RON Implementation

Join expert panelists that will discuss the status of federal legislation, trends in digital adoption and how best to prepare your organization for the next generation of lending processes.

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Appeals Court overturns Bank of America’s $1.27 billion fine in ‘Hustle’ case

BofA handed victory in row over Countrywide mortgages

The United States Court of Appeals for the Second Circuit handed Bank of America a massive victory, and dealt the Department of Justice a major blow, Monday when it overturned a $1.27 billion penalty against the megabank in a fraud case over defective mortgages sold by Countrywide, as first reported by Reuters.

The case stems from the government suing Bank of America over Countrywide’s “High Speed Swim Lane” or “HSSL” loan origination process, and was characterized by the program’s speed in underwriting loans. The “HSSL” program became known as “Hustle."

The government secured a victory over Bank of America in 2013 when a federal jury ruled that BofA and Countrywide were liable for defrauding Fannie Mae and Freddie Mac by selling toxic mortgage loans to the government-sponsored enterprises.

In 2014, a federal judge ruled that Bank of America was required to pay more than $1 billion in fines for the Hustle loan sales, despite the government seeking more than $2 billion.

Later that year, Bank of America asked U.S. District Judge Jed Rakoff in Manhattan to throw out the jury verdict, a request that Rakoff later denied in 2015.

Bank of America appealed Rakoff’s decision all the way to the U.S. Court of Appeals, which ruled Monday in Bank of America’s favor and threw out the fine.

The Appeals Court’s decision is 30 pages long, but the crux of the decision is here, quoted directly from the judges’ ruling:

On appeal, Defendants argue that the evidence at trial shows at most an intentional breach of contract—i.e., that they sold mortgages that they knew were not of the quality promised in their contracts—and is insufficient as a matter of law to find fraud. We agree, concluding that the trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises. Accordingly, we reverse with instructions to enter judgment in favor of Defendants. 

In sum, the Government has never argued—much less proved at trial—that the contractual representations at issue were executed with contemporaneous intent never to perform, and the trial record contains no evidence that the three Key Individuals—or anyone else—had such fraudulent intent in the contract negotiation or execution. Instead, the Government’s proof shows only post-contractual intentional breach of the representations. Accordingly, the jury had no legally sufficient basis on which to conclude that the misrepresentations alleged were made with contemporaneous fraudulent intent. Because we construe the federal mail and wire fraud statutes to require such proof, consistent with the common law, the Government has not proven the prerequisite violation necessary to sustain an award of penalties under FIRREA.

Click here to read the full decision.

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