Following a four-week trial, a federal jury in Manhattan on Wednesday found Bank of America liable for fraud in connection with faulty mortgages that Countrywide Financial Corp. – acquired by Bank of America in 2008 – sold to Fannie Mae and Freddie Mac just prior to the housing meltdown.
The jury also found former Countrywide executive Rebecca Mairone liable for one count of fraud. Mairone, now a managing director at JPMorgan, is accused of overseeing a process called the ‘High Speed Swim Lane,’ ‘HSSL’ or ‘Hustle’ that was allegedly used by Countrywide in 2007 to speed mortgage originations by side-stepping certain aspects of the application review process. Federal prosecutors allege that this program, in part, is what led to the shoddy loans that were passed onto Fannie Mae and Freddie Mac, and ultimately to investors.
Prosecutors said more than 45% of the loans that Countrywide sold to Fannie and Freddie during the period in question were ‘faulty.’Â
According to a Reuters report, it will now be up to U.S. District Judge Jed Rakoff to determine how much of a penalty Bank of America should pay in the civil case. The U.S. Department of Justice has recommended an award of up to $848.2 million, the gross loss Fannie and Freddie suffered on the loans. The court is scheduled to discuss the penalties on Dec. 5. Bank of America has already paid more than $40 billion to resolve regulatory actions and lawsuits stemming from the 2008 financial crisis.
A Bank of America spokesperson told Bloomberg News on Wednesday that the bank was debating whether it would appeal.
It is unclear what penalties Mairone might face.
‘She's a model of honesty, integrity and ethics,’ her lawyer, Marc L. Mukasey, a partner at Bracewell & Giuliani, told The New York Times. ‘She never engaged in any fraud because there was no fraud. We'll fight on.’
Although the civil trial is one of only a few stemming from the financial crisis, the verdict is being viewed as a major victory for the Justice Department, which has been criticized for failing to hold mortgage lenders accountable for their roles in the events leading up to the financial crisis.
Meanwhile, the U.S. government is negotiating a $13 billion settlement with JPMorgan Chase & Co. to resolve a number of investigations into its alleged sale of faulty mortgages.