Federal prosecutors have reportedly requested that Bank of America pay the maximum penalty of $863 million to compensate for when its Countrywide unit sold faulty mortgages to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in the years leading up to the financial crisis.
Last month, in the first mortgage fraud case brought by the U.S. government to go to trial, a federal jury found Bank of America liable for selling thousands of defective loans to the GSEs from 2005 to 2007. Most of the loans in question were originated by BofA's Countrywide unit prior to when BofA acquired the bank in 2008.
Prosecutors have asserted that Countrywide bank officials knew the loans were not properly underwritten – yet the bank intentionally misrepresented their quality when they were sold to the GSEs.
U.S. District Judge Jed Rakoff, who presided over the trial, is to determine the penalty Bank of America will pay. Prosecutors argue that because bank officials knew that the loans were faulty, the maximum penalty under the law is warranted.
During the trial, the jury also found former Countrywide executive Rebecca Mairone liable for one count of fraud for her role in the alleged fraud scheme. 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 sidestepping 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. The court is yet to determine the penalty Mairone will pay.
Prosecutors said more than 45% of the loans that Countrywide sold to Fannie and Freddie during the period in question were improperly underwritten.
For more, check out this Bloomberg News report.