Federal Prosecutors Sue Bank of America Over Mortgage Program
By Ben Protess, New York Times, Otober 24, 2012
Federal prosecutors in New York sued Bank of America on Wednesday, accusing it of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis.
In a civil complaint that seeks to collect $1 billion from the bank, the Justice Department took aim at a home loan program known as the “hustle,” a venture that has become emblematic of the risk-fueled mortgage bubble. The complaint adds to a flurry of federal and private lawsuits facing Bank of America’s beleaguered mortgage business.
Bank of America inherited the “hustle” home loan program with its purchase of Countrywide Financial in 2008. Prosecutors say the effort, kept alive by Bank of America through 2009, was intended to churn out mortgages at a rapid pace without proper checks on wrongdoing. The bank then sold the “defective” loans without warning to Fannie Mae and Freddie Mac, the government-controlled housing giants, which were stuck with heavy losses and a glut of foreclosed properties.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” Preet Bharara, the United States attorney in Manhattan, said in a statement. Mr. Bharara brought the case with the inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, and the government watchdog for the bank bailout program.
In a statement, a Bank of America spokesman said the bank “has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false.” The spokesman, Lawrence Grayson, added that “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.”
The case is one piece of a broader federal crackdown on Wall Street, a last-ditch effort to hold firms accountable for perceived misdeeds that fueled the mortgage crisis. In the wake of the crisis, authorities were blamed for the dearth of charges facing financial executives at the center of the crisis.
For all the grumbling about few criminal prosecutions, the government has now mounted dozens of civil cases against the nation’s biggest financial firms, leaving the financial industry to battle a chaotic and somewhat redundant web of litigation. Mr. Bharara sued Wells Fargo this month over questionable mortgage deals. President Obama also formed a federal mortgage task force, which recently filed its first case against JPMorgan Chase over mortgage deals created by Bear Stearns, the defunct firm that JPMorgan bought during the crisis.
The case announced on Wednesday is the latest legal headache for Bank of America stemming from its acquisition spree during the crisis. The bank, which has come to define the excesses that nearly toppled the financial industry in 2008, struck a $2.4 billion deal in September to settle a securities class-action lawsuit that it misled investors about the takeover of Merrill Lynch.
The Countrywide deal has fared far worse. Billions of dollars in soured loans from the subprime lending specialist wreaked havoc on Bank of American’s balance sheet. Securities regulators have also extracted nearly $70 million in fines from Countrywide’s former chief executive, Angelo R. Mozilo.
The lawsuit filed Wednesday threatens to impose steep fines on the bank. The Justice Department filed the case under the False Claims Act, which could provide for triple the damages suffered by Fannie and Freddie, a penalty that could reach more than $3 billion.
The case also overlaps with a number of actions that government agencies are pursuing against Wall Street banks. It builds on, for example, the Federal Housing Finance Agency’s decision last year to sue 17 big banks over losses sustained by Fannie Mae and Freddie Mac. The twin mortgage companies, bailed out by taxpayers in 2008, continue to push firms like Bank of America to repurchase billions of dollars in bad loans.
Finally, after many heartbreaks, and many foreclosures, and a housing bubble from which the U.S. is still recovering, the federal government is actively pursuing justice, at least with one giant player in the game.
Whether or not this move comes soon enough to provide political heft for the re-election of the president is still unknown. We have to wait another two weeks.
However, as in the long preparation for the Islamabad attack on Ben Laden, this administration continues to walk the long walk to justice, to righting wrongs, to choreograph the many arms of government in the pursuit of both protection and security at home and around the world.
We hear so much from the Romney-Ryan chorus that Obama has no plans for the next four years. However, I think the truth is that they know, as do those of us willing to peek into the fine print of the president's thinking, and the history of his administration, that their friends, Wall Street, The Koch Brothers, Bob Murray and Murray Energy, Adelson and the many donors whose cheques have been mailed in to Karl Rove, the Republican conjurer of voting strategies and tactics, mystically and pontifically designed and delivered will have to pay their fair share as part of the deficit/debt settlement that the president will sign.
They also know that, should a vacancy emerge on the Supreme Court, any names put forward by President Obama will be moderate, will not pass the litmus test of the Tea Party, or of the Roman Catholic church's obsession with the termination of Roe v Wade, nor will that name carry to the court the philosophy that supports returning abortion and education to the states, that removes all regulations from Wall Street, that turns political campaigns into cash floods of anonymous cash, and that permits employers to demand political activism on behalf of the Republican candidates, that permits the states to suppress the votes of the poor and the underclass of all ethnicities, and that gerrymanders voting districts in favour of the Republican party candidates.
This latest move against the Bank of America is not merely a leaf in the wind of the political discourse; it is, rather, a signal of more moves to come, should Obama be returned to the White House, moves that the country needs and the rich and powerful are desperate to foreclose.