United States of America vs. Bank of America et al

United States of America vs. Bank of America et al Re: Complaint for Mortgage Fraud

by Barry Fagan
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Manhattan U.S. Attorney Sues Bank Of America For Over $1 Billion For Multi-Year Mortgage Fraud Against Government Sponsored Entities Fannie Mae And Freddie Mac

FOR IMMEDIATE RELEASE

Wednesday, October 24, 2012

After Collapse of Subprime Lending Market in 2007, Countrywide Started Alleged Fraudulent Mortgage Origination Program Called the “Hustle” Designed to Sell Defective Loans to Fannie Mae and Freddie Mac

Bank of America Continued the “Hustle” After Acquiring Countrywide in 2008.

For many years, COUNTRYWIDE, on its own and as part of BANK OF AMERICA, was the largest provider of residential mortgage loans to the Government-Sponsored Enterprises, Fannie Mae and Freddie Mac (collectively, the “GSEs”). The GSEs were chartered by Congress with a mission to provide liquidity, stability, and affordability to the United States housing and mortgage markets. As part of this mission, Fannie Mae and Freddie Mac purchase single-family residential mortgage loans from lenders, and pool them into mortgage-backed securities, which they sell to investors on the open market. The GSEs guarantee payments of principal and interest to investors in the event that any loan in a mortgage-backed security defaults.

Fannie Mae and Freddie Mac rely on the lenders’ representations and warranties that the loans they are delivering for sale comply in all respects with the standards outlined in the Fannie Mae and Freddie Mac selling guides and lender sales contracts, which set forth underwriting, documentation, quality control, and self-reporting requirements. Because Fannie Mae and Freddie Mac do not do a pre-purchase loan review, lender representations that they are underwriting and delivering investment-quality mortgages according to selling guides and contractual requirements are central to the GSEs’ purchase decisions.

In September 2008, as a result of massive losses from, among other things, the payment of guarantees to investors on loans that defaulted, Fannie Mae and Freddie Mac were placed in conservatorship under the FHFA pursuant to the Housing and Economic Recovery Act of 2008. Simultaneously with the creation of the conservatorships, the United States Treasury exercised its authority under this Act to purchase Fannie Mae and Freddie Mac stock. As of December 31, 2011, the Treasury had provided $183 billion in funding to Fannie Mae and Freddie Mac through stock purchases.

Bank of America received $15 billion in federal funds through the U.S. Department of the Treasury’s Troubled Asset Relief Program (TARP) on October 28, 2008; an additional $10 billion on January 9, 2009; and $20 billion on January 16, 2009. Bank of America repaid taxpayers’ combined $45 billion TARP investment in full on December 9, 2009.

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The Complaint seeks civil penalties under FIRREA, as well as treble damages and penalties under the False Claims Act, for over $1 billion in losses suffered by Fannie Mae and Freddie Mac for defaulted loans fraudulently sold by COUNTRYWIDE and BANK OF AMERICA.

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating financial fraud, including mortgage fraud.

To date, the Office’s Civil Frauds Unit has brought five other civil fraud lawsuits against major lenders under the False Claims Act alleging reckless residential mortgage lending in connection with loans insured by the Federal Housing Administration. Three of the five cases have settled. On February 15, 2012, the Government settled its civil fraud lawsuit against CitiMortgage, Inc. for $158.3 million. On February 24, 2012, the Government settled its civil fraud suit against Flagstar Bank, F.S.B. for $132.8 million. On May 10, 2012, the Government settled its civil fraud suit against Deutsche Bank and MortgageIt for $202.3 million. The Government has also filed lawsuits against Wells Fargo, N.A., as well as against Allied Home Mortgage Corp. and two of its officers. Those cases remain pending. In each settlement, the defendants have admitted and accepted responsibility for certain conduct alleged in the Governments’ Complaint. The Office’s Civil Frauds Unit is handling these cases as part of its continuing investigation of reckless lending practices.

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Barry Fagan
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