U.S. Sues Bank of America for Countrywide’s “Brazen” Mortgage Hustle


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Wednesday, October 24th, 2012

By Norma Garcia


The Washington Post reported today that the top federal U.S. prosecutor in Manhattan filed a civil lawsuit against Bank of America for more than $1 billion for mortgage fraud.  The complaint filed by the US Attorney seeks to recover damages and penalties for a scheme to defraud Fannie Mae and Freddie Mac which it says was perpetrated by Countrywide during 2007 to 2009, during the years around the financial crisis.  In 2008 Countrywide merged with Bank of America and is now owned by Bank of America.  Bank of America assumed liability for Countrywide’s conduct and is therefore named as the defendant in this action.


The allegations should come as no surprise to those of us who watched mortgage lenders act with impunity while they churned out loans to borrowers regardless of whether the borrowers could afford to repay the loans.  As these loans were bundled and sold off to Fannie Mae and Freddie Mac, Countrywide and others played a dangerous game of hot potato, enjoying profits bloated by the shear volume of loan originations, and passing the risk on to others, in this case Fannie Mae and Freddie Mac, two government sponsored entities (GSEs).


The complaint calls Countrywide’s actions “brazen” and states “in 2007, as loan default rates rose across the country and GSEs reevaluated their loan purchase requirements, Countrywide rolled out a new “streamlined” loan origination model it called the “Hustle.”  In order to increase the speed at which it originated and sold loans to the GSEs, Countrywide eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud and other serious loan defects, all while Countrywide was informing the GSEs that it had tightened its underwriting guidelines.  When the loans predictably defaulted, the GSEs incurred more than a billion dollars in unreimbursed losses.”


Talk about a hustle.  The lawsuit says that Countrywide executives were aware of the risky path they were taking.  The complaint alleges many alarming practices, among them: underwriter review was eliminated even from many high risk loans; unqualified individuals were assigned to answer borrower questions; checks and balance systems were dismantled, and; compensation based on origination volume ruled the day, removing any quality factor in loan origination decisions.


According to the lawsuit, Countrywide’s records showed a 40% default rate for “Hustle” loans in certain months, “rates that were ten times the industry standard of 4%.”  But that’s just the beginning.  Read the full complaint here


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