The top federal prosecutor in Manhattan filed a lawsuit today that alleges Bank of America Corp. cost American taxpayers more than $1 billion when it sold toxic mortgages — originally issued by Countrywide Financial — to the government controlled Fannie Mae and Freddie Mac.
NPR's Margot Adler explains it like this to our Newscast unit:
"U.S. Attorney Preet Bharara described the conduct of Countrywide as 'spectacularly brazen in scope.'
"The lawsuit says they used something called the "Hustle," shorthand for High Speed Swim Lane. Borrowers did not have to get their income verified, and loan processors put the data into an automated underwriting system with few checks and balances and widespread falsification.
"Bonuses were based on the quantity of loans, said Bharara, not the quality. The lawsuit claims Countrywide executives were aware of what was going on, that one review in 2008 showed that 57 percent of these loans went into default. The lawsuit said Countrywide sold thousands of these loans to Fannie and Freddie."
The New York Times explains that Bank of America bought Countrywide in 2008, but the loans continued until 2009.
The Times reports on Bank of America's response:
"In a statement, a Bank of America spokesman said the bank 'has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false.' The spokesman, Lawrence Grayson, added that 'At some point, Bank of America can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn.'
"The case is one piece of a broader federal crackdown on Wall Street, a last-ditch effort to hold firms accountable for perceived misdeeds that fueled the mortgage crisis. In the wake of the crisis, authorities were blamed for the dearth of charges facing financial executives at the center of the crisis."