Yet Another Lawsuit Against Bank Of America Over Countrywide's Legacy Toxic Mortgages

Tyler Durden's picture

There was a time when the announcement of lawsuits against Bank of America for the fraudulent mortgage practices of the worst M&A acquisition of all time - Countrywide Financial - sent the stock of BAC plunging. Now, it has become a daily thing and any incremental news barely cause a budget in the stock. One just needs to look at the surging Reps and Warranties claims against the bank (most recently in the latest Q3 earnings report) for improper mortgage conduct in the past to get a sense that very soon the firm's entire market cap will be less than the liability and litigation reserve it will need to establish against the avalanche of lawsuits we predicted back in October 2010. The litigation against the bank now is so large, that it will soon have to pull its TBTF get out of bankruptcy card just to avoid being sued to death in a 1000 legal paper cuts. This explains why the just announced latest lawsuit against BAC by the NY District Attorney, seeking $1 billion or so, for fraudulent loan-origination practices barely caused a stir in the stock.

From Bloomberg:

Bank of America Corp. (BAC) was sued by the U.S. attorney in Manhattan for allegedly engaging in a scheme to defraud Fannie Mae and Freddie Mac.


The complaint alleges that Countrywide Financial Corp., which was later bought by Bank of America, implemented a loan- origination process that generated thousands of fraudulent or defective loans that were sold to Fannie Mae and Freddie Mac, according to a statement today from the Manhattan U.S. Attorney’s Office.

This event in itself is not spectacular, or even noteworthy: BAC will eventually settle for pennies on the dollar even as Fannie, Freddie and Bharara all get to say they did their best. What is more notable is that it is precisely the endless continuation of such legal action against BAC and the other banks, that has pushed them away from the mortgage origination business, and why the banks are so very leery of lending money to retail consumers, because they know that sooner or later, the latest bout of cheap crediting will come back to bite them in a court of law.

Implicitly, this development favors such firms as MBIA, who are suing BAC for essentially the same thing, as it weakens BAC's argument that it did nothing wrong, and also is bullish for legacy-liability free mortgage orginators such as Ocwen, who are happy to boldly issue mortgage where none of the legacy banks wish to tread any longer.

The full press release from the DOJ, starting as follows: "After Collapse of Subprime Lending Market in 2007, Countrywide Started Alleged Fraudulent Mortgage Origination Program Called the “Hustle” Designed to Sell Defective Loans to Fannie Mae and Freddie Mac" can be found here.

Full lawsuit link here.

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slaughterer's picture

Let's give US banks fraud forgiveness already.  This is getting to be too much punishment.   It is removing their competitive advantage in global capital markets.  

Zadok's picture

These farcical distractions are used to confuse the sheep with big sounding numbers that are incompatibly minute wrt the crime and will simply lay on the docket until such time as multiple taupe swan events overwhelm sheeply attention spans giving sufficient cover for effective dismissal.

How is that for a fact filled run-on sentence?

hunglow's picture

My girlfriend likes being spanked too.

LMAOLORI's picture



Did you forget the sarc? You sound like the Banking Queen Barney Frank

Barney Frank cries foul in government's lawsuit against JPMorgan


(Reuters) - Democratic Congressman Barney Frank defended the largest U.S. bank on Monday, saying in a statement that the government was wrong to go after JPMorgan Chase & Co for the alleged misdeeds of Bear Stearns.


Frank, who served as chairman of the House Financial Services Committee during the Bear Stearns acquisition, said federal and state officials should reconsider holding financial firms liable for the wrongdoing of institutions they absorbed at the government's urging.


"The decision now to prosecute J.P. Morgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished," said Frank, who was also the co-author of the 2010 Dodd-Frank financial reform law.


New York Attorney General Eric Schneiderman sued JPMorgan, the nation's largest bank by assets, on October 1 over mortgage-backed securities packaged and sold by Bear Stearns.

But Schneiderman gained support from former New York Attorney General Eliot Spitzer who said in a statement that the complaint catalogs evidence of "platform-wide wrongdoing".

"It is a necessary action to bring accountability for the mortgage meltdown and the financial collapse. Widespread misconduct should not disappear simply because one bank has been acquired by another."



The Curious Tale of BlackRock’s No-Bid Contract With the New York Fed

The gifting of Bear Stearns to Jamie Dimon's JPMorgan Chase

The gifting of Washington Mutual & Bear Stearns

Our question continues. Does Dimon have pictures of Geithner performing unnatural acts or was the fact that the former Chase Chairman John Whithead was partly responsible for Geithner becoming Fed president enough for Geithner to deliver for Dimon, time after time?

JP Morgan Sold Investors MBS Covered By "SACK OF SHIT" Loans... Then Shorted All Those With Exposure: A Goldman-AIG Redux

Joebloinvestor's picture

This is BULLSHIT and everybody should know it.

I would alter my opinion if the powers to be would go after every congress person who benefitted from Countrywide's VIP loan program.

Mozilla should have been jailed along with those in charge of Fannie and Freddie.

Barney Frank should choke off on a dildo.


Zero Govt's picture

Barney Frank should be jailed too ....he can choke off on a dildo in there

Nothing To See Here's picture

I think Barney Frank would be far more too happy to be chocked off on a dildo...

slaughterer's picture

Code Name "Hustle"  LOL

Zero Govt's picture

someone dangled a sugar coated turd (Countrywide) infront of Bank of America's nose and they bit

Winston Churchill's picture

But Merrill Lynch is actually the more poisonous aquisition.

Thats where the really big fraud numbers are hidden.

Talking trillions in that cess pit.

We all know the taxpayers gets the shit sandwich,the bankers the ice cream.

Sauce on that ?

Piranhanoia's picture

What is the name of this new Dr. Frankenstein that would continue to rejuvante the monster?

Nothing To See Here's picture

US government suing BofA : "Suing our own subsidiary so that we cover our responsibility"

Mr Lennon Hendrix's picture

And now Bernanke is buying $40B worth of MBS/month making the Federal Reserve Bank the largest owner of toxic mortgages in the world.

This is your taxpayer life and it's ending one minute at a time....

ghostfaceinvestah's picture

This is a meaningless lawsuit, the Manhattan US Attorney has no standing.

WarPony's picture

Bank of America's new headquarters in New York City is for the company's investment banking division  ??


... didn't down you

rosethorn's picture

Look at the trend of banks taken down by the FDIC...hint, it's downward.  BoA should be dismantled and liquidated.  The chances of that happening, though, are low.

Darkness's picture

I've been long BAC since around $6.

Boxed Merlot's picture

Just keep transferring corrected / perfected legal ownership to benny at the rate of frn1M per minute from now on until all the "toxic" improved US real estate is in their legal possession.  The rate of transfer was already figured into the mix by these smarter than us lemmings, and as long as their ownership of the US judiciary remains intact, the bis, imf and fed are happy as clams.

Why aren't you?


Napalm them into bankrupcy with a veritable firestorm of lawsiits. No one's gonna miss them. Take out Citi and Wells Fargo while you are at it.

spanish inquisition's picture

Yawn, a billion? Ben shits that before breakfast.

object_orient's picture

Plus civil penalties and triple damages. So a few billion. The 3 previous settlements listed at the end of the press release are around 150 million. This is Obama "getting tough on bank fraud." Steal a billion, pay back 1/10th. And admit to "some" of the wrongdoing alleged in the lawsuit. No jail time. Where do I sign up?

Meanwhile, steal a carton of cigs, and you do prison time.

Ms. Erable's picture

Wake me when the feds file criminal charges.

Atlantis Consigliore's picture


NEW YORK (AP) -- The latest federal lawsuit over alleged mortgage fraud paints an unflattering picture of a doomed lender: Executives at Countrywide Financial urged workers to churn out loans, accepted fudged applications and tried to hide ballooning defaults.

The suit, filed Wednesday by the top federal prosecutor in Manhattan, also underscored how Bank of America's purchase of Countrywide in July 2008, just before the financial crisis, backfired severely.

The prosecutor, Preet Bharara, said he was seeking more than $1 billion, but the suit could ultimately recover much more in damages.

"This lawsuit should send another clear message that reckless lending practices will not be tolerated," Bharara said in a statement. He described Countrywide's practices as "spectacularly brazen in scope."

Bank of America had no immediate comment.

Countrywide was a giant in mortgage lending, but was also known for approving exotic, even risky, loans. By 2007, as the market for subprime mortgages collapsed, Countrywide was anxious for revenue.

The lawsuit alleged that the company loosened its standards for making loans while telling Fannie Mae and Freddie Mac, which were buying loans from Countrywide, that standards were getting tighter.

Fannie and Freddie, which packaged loans into securities and sold them to investors, were effectively nationalized in 2008 when they nearly collapsed under the weight of their mortgage losses.

To churn out more mortgage loans, Bharara said, Countrywide introduced a program called the "Hustle," shorthand for "High-Speed Swim Lane." It operated under the motto, "Loans Move Forward, Never Backward."

The program eliminated checks meant to ensure that mortgages were being made to borrowers who could afford them, according to the lawsuit.

For example, loan processors no longer had to complete worksheets that helped them assess whether income levels that borrowers entered on their loan applications were reasonable.

If processors entered a borrower's information into a computerized underwriting program and the program raised flags, employees were encouraged to change the numbers, the suit said.

It also said that bonuses were awarded based solely on the number of loans that an employee could generate, not on their quality.

The process led to "widespread falsification" of mortgage data, Bharara charged. And when Countrywide executives became aware of the dangerously high number of borrowers defaulting, it hid the problem, according to the lawsuit.

In early 2008, for example, Countrywide offered bonuses for employees who could "rebut" the high rate of defaults. The standards were low, according to the lawsuit: If a review found that the income a borrower listed on his application seemed unreasonable, an employee could rebut the finding "simply by arguing that the stated income was reasonable."

The lawsuit gives seven examples of mortgages made for homes in California, Alabama, Florida and Georgia in which the borrowers' income and other qualifications were falsified.

For example, one loan application, for a home in Miami, said that the borrower was an airline sales representative earning $15,500 per month, when the borrower worked for a temp agency and earned $2,666 per month. The borrower defaulted within seven months, the suit said.

A loan application for a home in Birmingham, Ala., failed to disclose $81,000 in debt that the borrower was carrying. That borrower defaulted within a year, the suit said.

The lawsuit accused Countrywide, and later Bank of America, of selling thousands of Hustle loans to Fannie and Freddie. The lawsuit says that that the Hustle program continued through 2009.

According to the lawsuit, Fannie and Freddie don't review loans before they purchased them. Instead, they relied on banks' statements that the loans met certain qualifications.

Bharara said the lawsuit was the first civil fraud suit brought by the Justice Department concerning loans later sold to Fannie and Freddie. When Fannie and Freddie collapsed, investors were wiped out.

Taxpayers have spent $170 billion to keep Fannie and Freddie afloat, and it could cost $260 billion more to support the companies through 2014 after subtracting dividend payments to taxpayers, according to the government.

The lawsuit says that Fannie and Freddie suffered $1 billion in losses because they had to pay for Countrywide's defaulted loans. The lawsuit also complains that Bank of America is refusing to buy back mortgages "even where the loans admittedly contained material defects or even fraudulent misrepresentations."

Bank of America's purchase of Countrywide originally earned it plaudits from lawmakers because Bank of America was viewed as stepping in to eliminate a bad actor from the mortgage market.

But the purchase, instead of padding Bank of America's mortgage business, has drawn a drumbeat of regulatory fines, lawsuits and losses.

Bank of America reported last week that while it is issuing more mortgages — $21 billion worth last quarter, up 18 percent from a year earlier — its mortgage unit is still losing money as the bank works through crisis-era problems.

In the past year and a half, Bharara's office has settled lawsuits against CitiMortgage, Flagstar Bank and Deutsche Bank over mortgages. Its lawsuits against Wells Fargo and Allied Home Mortgage are pending.

Seasmoke's picture

i hope Mozillo and Lewis are both doing well and enjoying life