The U.S. Attorney for the Southern District of New York slapped Bank of America (BAC) with a $1 billion lawsuit, claiming Countrywide loans were originated in a manner that disguised underwriting flaws leading to substantial losses at Fannie Mae and Freddie Mac.
This is the first civil fraud suit in the mortgage space filed by the government due to losses on loans acquired by Fannie Mae and Freddie Mac.
The suit claims Countrywide, which is now part of Bank of America, used an origination process called the hustle to push loans at high speeds through quality control checkpoints, resulting in the creation of fraudulent and deceptive loans that were sold to the government-sponsored enterprises.
The loans eventually defaulted causing $1 billion in losses and foreclosures, the U.S. Attorney office of Preet Bharara claims. Bharara also slapped Wells Fargo (WFC) with a multimillion-dollar lawsuit in October, claiming the bank concealed the condition of Federal Housing Administration-insured toxic loans, costing the government money when the loans eventually defaulted.
The BofA investigation is being handled with the assistance of the Federal Housing Finance Agency General Inspector and SIGTARP.
The loans in question were originated from 2007 through 2009 under the umbrella of Countrywide and then Bank of America when it took over the subprime lender in 2008.