U.S. Sues Bank of America for $1B in Bad Loans Sold to Fannie, Freddie

The U.S. Justice Department is seeking $1 billion from the nation’s second-largest bank by assets, Bank of America, for allegedly selling defective mortgages to government-subsidized Fannie Mae and Freddie Mac.
A Bank of America program, known internally as “the Hustle,” was designed to “process loans at high speed and without quality checkpoints, and generated thousands of fraudulent and otherwise defective residential mortgage loans.”
 
Fannie Mae and Freddie Mac relied on the lender’s assurances that the loans complied with the two entities’ selling guides and the actual sales contracts. Both Fannie and Freddie have received more than $180 billion in bailout funds since the two companies were taken over by the government four years ago.
The bad loans alleged to be part of the widespread fraud outlined in the lawsuit resulted in at least $1 billion in losses to Fannie and Freddie. The scheme also resulted in countless foreclosures, U.S. officials allege.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” said Manhattan U.S. Attorney Preet Bharara in a statement. “As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill.”
The government alleges that the “Hustle” program – also known as the “High-Speed Swim Lane” or HSSL program – was started by mortgage lender Countrywide Financial. But it continued after it was purchased by Bank of America in 2008. It ran through 2009, the suite alleges.
The Hustle program removed necessary quality control “toll gates” that could slow down the mortgage origination process, the suit alleges.
For example, the Hustle eliminated underwriters from loan production, even for many high-risk loans that inlcuded stated-income loans. Instead, the Hustle relied almost exclusively on unqualified and inexperienced clerks, called loan processors.
Bank of America received $15 billion in taxpayer funds through the Treasury Department primary bailout vehicle, the Troubled Asset Relief Program (TARP), on October 28, 2008; and an additional $30 in January 2009.
Bank of America repaid taxpayers’ combined $45 billion TARP investment in full on December 9, 2009.

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