Article : Bloomberg.com
October 24, 2012
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
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 Preet Bharara, the United States Attorney for the Southern District of New York, Steve A. Linick, the Inspector General of the Federal Housing Finance Agency (“FHFA”), and Christy L. Romero, the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”), announced today that the United States has filed a civil mortgage fraud lawsuit against BANK OF AMERICA CORPORATION (“BANK OF AMERICA”) and its predecessors Countrywide Financial Corporation and Countrywide Home Loans, Inc. (collectively, “COUNTRYWIDE”).
Dis-InfoWars Grade : +3
Dis-InfoWars Comment :
Dis-InfoWars Comment : Lets not forget that earlier this month Wells Fargo and JPM were sued for exactly the same thing!!!!!
Cry - Cry - Cry!
The Government’s Complaint seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) for engaging in a scheme to defraud the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Specifically, the Complaint alleges that from at least 2007 through 2009, COUNTRYWIDE, and later BANK OF AMERICA after acquiring COUNTRYWIDE in 2008, implemented a new loan origination process called the “Hustle,” which was intentionally designed to process loans at high speed and without quality checkpoints, and which generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over $1 billion dollars in losses and countless foreclosures.
This is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac. Manhattan U.S. Attorney Preet Bharara said: “For the sixth time in less than 18 months, this Office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill. As described, Countrywide and Bank of America systematically removed every check in favor of its own balance - they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects. These toxic products were then sold to the government sponsored enterprises as good loans. This lawsuit should send another clear message that reckless lending practices will not be tolerated.”
FHFA Inspector General Steve A. Linick said: “To prevent fraud, conducting quality reviews and complying with underwriting standards are critical. Countrywide and Bank of America allegedly engaged in fraudulent behavior that contributed to the financial crisis, which ultimately falls on the shoulders of taxpayers. This type of conduct is reprehensible and we are proud to work with our law enforcement partners to hold all parties accountable.” SIGTARP Special Inspector General Christy Romero said: “The complaint filed today alleges serious and significant misrepresentations that Bank of America made before and during the time taxpayers invested $45 billion in TARP funds in the bank. SIGTARP and its law enforcement partners will investigate allegations of wrongdoing by TARP recipients, particularly conduct that results in substantial losses to the government and taxpayers.”
The following allegations are based on the Complaint filed today in Manhattan Federal court:
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
Lender representations attest to the credit quality of their loans at the time of sale, the borrower’s ability to repay the loan, and the accuracy of the loan data provided. Among the most basic requirements of an investment-quality mortgage are that: (i) all required loan data is true, correct, and complete; and (ii) no fraud or material misrepresentation has been committed by any party to the loan. A lender must also represent and warrant that its quality control department implements various post-closing measures intended to detect problems with loan quality and fraud. Whenever a lender identifies a material breach of a selling warranty, it must self-report the loan to the GSE.
COUNTRYWIDE initiated the Hustle (or “HSSL,” for “High-Speed Swim Lane”) in 2007 through its Full Spectrum Lending Division, just as loan default rates were increasing throughout the country and the GSEs were tightening their loan purchasing requirements to reduce risk. According to internal COUNTRYWIDE documents, the goals of the Hustle were high speed and high volume, where loans “move forward, never backward” in the origination process. To accomplish these goals, the Hustle removed necessary quality control “toll gates” that could slow down the origination process. For example, the Hustle eliminated underwriters from loan production, even for many high-risk loans, such as stated income loans. Instead, the Hustle relied almost exclusively on unqualified and inexperienced clerks, called loan processors. Although loan processors had not been previously considered competent or knowledgeable enough to be permitted even to answer borrower questions, they were now required to perform critical underwriting duties. If a loan processor entered data from a loan file into an automated underwriting system called CLUES and received a rating that the loan had an acceptable risk of default (or “Accept” rating), no underwriter would ever see the loan. The Hustle also did away with compliance specialists, whose job it was to ensure that any loans that were approved with conditions had the conditions satisfied before closing. Although loan processors were at the time entrusted with much more responsibility, they were given much less guidance. For example, mandatory checklists for performing important underwriting tasks (such as evaluating an appraisal or assessing the reasonableness of stated income) were eliminated. Loan processors were also financially incentivized to put volume ahead of quality, as Full Spectrum Lending changed its compensation plan to provide bonuses based solely on loan volume. Reductions to compensation for poor loan quality were discontinued...............................