Bank of America’s Countrywide unit, formerly headed by Angelo Mozilo (above), knowingly dumped thousands of toxic mortgages on Fannie Mae through a program the bank called “The Hustle,” Uncle Sam charged. (AP)
Millions of Americans are getting hustled.
Bank of America was slammed yesterday with a $1 billion civil lawsuit charging its Countrywide Financial unit ran a loan program, dubiously dubbed the “Hustle,” that cranked out toxic mortgages dumped onto Fannie Mae and Freddie Mac.
Countrywide’s toxic time bombs eventually blew up, sticking taxpayers with the bill, the Justice Department charged in the suit.
“The fraudulent conduct alleged in [yesterday’s] complaint was spectacularly brazen in scope,” said US Attorney Preet Bharara.
As detailed over 46 pages, the “hustle” created by Countrywide, which was run by Angelo Mozilo through July 2008, sought to “increase the speed at which it originated and sold loans” to Fannie and Freddie — key cogs in the country’s mortgage machinery, which guarantee the vast majority of home loans.
The suit comes just weeks after Charlotte, NC-based BofA, which scooped up Countrywide in 2008, agreed to pay $2.43 billion to settle a class-action suit accusing it of misleading investors about Merrill Lynch’s financial condition during the hasty merger during the crisis.
This latest lawsuit brings BofA’s potential mortgage and litigation-related exposure to roughly $31 billion.
“As alleged, through a program aptly named the Hustle, Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill,” Bharara said.
The suit, which covers activities from 2007 to 2009, claims that Countrywide informed Fannie and Freddie that it was ratcheting up its lender standards even though its new loan origination model led to “rampant instances of fraud and other serious loan defects.”
BofA shares fell 5 cents to $9.31 yesterday.
The suit is one of many filed by Washington against banks for alleged shoddy mortgage work.
Bharara’s suit marks the first time the Justice Department has gone after a bank on behalf of so-called government-sponsored entities like Fannie and Freddie.
It also may open a door for other plaintiffs to extract more money from BofA, run by Chief Executive Brian Moynihan, because the new suit demonstrates more clearly that the bank can be viewed as responsible for the bad actions committed by Countrywide.
Bharara may also be following a path set by New York Attorney General Eric Schneiderman, who sued JPMorgan Chase for mortgage fraud committed at Bear Stearns even before the JPMorgan bailed out the teetering firm.
“Bank of America is suffering death by a thousand cuts,” said Christopher Whalen, senior managing director at Tangent Capital.
A BofA spokesman fired back, saying, “The claim that we have failed to repurchase loans from Fannie Mae is simply false.
“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,” he noted.