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Bank of America sued for $1 billion, over 'the Hustle'

By Catholic Online (NEWS CONSORTIUM)
October 25th, 2012
Catholic Online (www.catholic.org)

An ill-fated scheme appropriately called "the Hustle" has landed one of the nation's largest banks in hot water. The United States has filed fraud charges against Bank of America Corporation. The bank is accused of causing taxpayers more than $1 billion of losses by selling thousands of "toxic" mortgage loans to Fannie Mae and Freddie Mac.

LOS ANGELES, CA (Catholic Online) - The occasion marks the first time the justice department's has brought a civil fraud case over mortgage loans that were sold to the big mortgage financiers.

Bank of America Chief Executive Brian Moynihan also faces charges in the U.S. bank's disastrous 2008 purchase of Countrywide Financial Corp, once the nation's largest mortgage lender.

Countrywide in 2007 invented a scheme known as "the Hustle" in 2007 to speed up processing of residential home loans.

"Loans Move Forward, Never Backward," went the cheery motto. Working under the Hustle, mortgage executives tried to eliminate "toll gates" designed to ensure that loans were sound and not sullied by fraud.

This in turn led to "defect rates" that approached 40 percent -- roughly nine times the industry norm. Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to "rebut" the problems being found, the government's suit adds.

Defaults soared and "countless" foreclosures were the result. "The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope," Manhattan attorney Preet Bharara said. "Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill."

Bank of America Spokesman Lawrence Grayson said in response to the petition that "Bank of America 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. 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."

Bank of America agreed to a $1 billion settlement of False Claims Act allegations over home loans submitted for insurance by the Federal Housing Administration last February.

The current case seeks civil fines, as well as triple damages under the federal False Claims Act, which the government has used several times in recent years against Wall Street.

Some of these costs related to Merrill Lynch & Co, which Lewis bought at the beginning of 2009. Last month, Bank of America agreed to pay $2.4 billion to settle a lawsuit accusing it of misleading investors about that takeover.

Federal regulators seized Fannie Mae and Freddie Mac on September 7, 2008 to put them into a conservatorship.

The mortgage financiers are now overseen by the Federal Housing Finance Agency, and have repaid only about one-fourth of the more than $188 billion of taxpayer funds they have drawn down.

Fannie Mae alone has drawn down more than $116 billion.

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