Feds Sue Bank Of America Over $1 Billion In Bad Loans Sold To Fannie Mae, Freddie Mac

(Meg)

Bank of America continues to crawl through the legal spanking machine because of its ill-fated, idiotic, utterly stupid decision to buy Countrywide Financial and its mountain of toxic mortgages in 2008. This time, it’s the U.S. government that has sued the bank over all the rotten loans it sold to Freddie Mac and Fannie Mae, both of which were bailed out by the feds in 2008.

According to the lawsuit, between 2007 and 2009, a Countrywide initiative called “the Hustle” ramped up the speed at which the Worst Company In America winner originated mortgages and then sold them off like billions of dollars worth of hot, worthless potatoes.

To do so, Countrwide’s mortgage unit allegedly falsely claimed these loans qualified for insurance from Fannie Mae and Freddie Mac.

The U.S. attorney in charge of the case say Countrywide “made disastrously bad loans and stuck taxpayers with the bill,” and that “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.”

The complaint cites internal Countrywide documents that refer to the removal of “toll gates” to loan approval and that loans should “move forward, never backward.”

Thus, loan officers skipped the whole underwriter review process — the part of the mortgage approval that is usually the most painful and annoying — and instead handed applications off to processors, who according to the lawsuit, “were previously considered unqualified even to answer questions.”

All the while, Countrywide was allegedly assuring Fannie and Freddie that it actually had stricter underwriting guidelines.

In all, Fannie and Freddie bought up around $1 billion in loans that had been rushed through the Hustle. The law allows for the feds to seek up to triple the damages in this case.

In 2009, after snapping up Countrywide, Bank of America accounted for one out of five loans bought or backed by Fannie Mae. That number had dwindled down to 3% by the end of 2011, and in early 2012, Fannie stopped buying and backing any new BofA-originated loans because the bank refused to repurchase billions in defaulted loans.

The government recently filed a lawsuit against Wells Fargo over allegations that it became a toxic loan factory and that its toxic mortgages left the Federal Housing Administration in a bind.

But the difference here is that Fannie Mae and Freddie Mac, while bailed out with $142 billion in taxpayer money, are not actual federal agencies.

U.S. Sues BofA for $1 Billion Over Mortgage Losses [WSJ.com]