Bank Of America Has A Problem- Pay Up For Rebecca Mairone's Hustle?

Nov.11.13 | About: Bank of (BAC)

When Bank of America (NYSE:BAC) finally was able to buy Angelo Mozilo's Countrywide Financial in 2008, a financial institution BAC longed to acquire for many years, they took on the legal liabilities for a slew of problems that Countrywide incurred during the early excesses of the mortgage crisis.

The Senior Vice President of Bank of America's Home Loans, Rebecca (Steele) Mairone, was at the forefront of the legal case that was filed in federal court by the United States of America. Her leadership as head of the Countrywide mortgage unit caused her to be named as one of people involved in a practice that cost government lending agencies over a billion dollars.

After a four week trial, Rebecca was recently found by a jury of four men and six women to be liable for civil fraud. The United States Attorney, Preet Bharara said " In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow. That profit, however, was built on fraud, as the jury unanimously found".

Who Is Rebecca Mairone?
Rebecca Mairone was a Chief Operations Officer at Countrywide during the mid-2000s, who made a name for herself by playing hardball with the high testosterone big boys in the company. Though well liked by most, she was known for her salty language and tough-minded tactics in the male dominated bank.

Ms. Mairone was born in West Virginia and educated at Villanova University by the Order of Saint Augustine and than received a degree in chemical engineering at Drexel University. Before joining Countrywide, her background included procuring furniture for technology companies while working at FMC. She went on to become senior operations manager for several mortgage companies in New York and New Jersey.

According to her linkedin.com account, she was Senior Vice President of National Retail Mortgage Sales at J.P. Morgan (NYSE:JPM) from March, 2001 to February of 2006 in Iselin, N.J. and Fort Washington, PA. She then joined Countrywide in February of 2006.

The Hustle
By 2008, Ms. Mairone may have been feeling the pressure to keep the mortgages coming in for Countrywide. Being one of the few women in a field primarily comprised of men, she might have felt that pressure especially keenly. Her idea to allegedly fast-track mortgage applications, called the "high speed swim lane," or "hustle," kept the money flowing to Countrywide's advantage. However, in the process, the civil fraud case alleges that loan processors were provided incentives to manipulate borrower's financial information in order to get the loans approved. These allegations do not help banks make good credit decisions and accumulate credit worthy customers.

Aftermath of the Hustle and The Verdict
After Bank of America's purchase of Countrywide, Rebecca Mairone became the public face of the bank's efforts to resolve some of the bad mortgages that occurred during the worst of the mortgage hustle when she was named BofA's National Mortgage Outreach Executive in March of 2011. However, a federal jury in Manhattan added Ms. Mairone's name to the case of civil fraud, alleging that these bad loans were deliberately being steered to Fannie May and Freddie Mac, causing over $1 billion in losses.

Ms. Mairone's lawyers allege that she had no particularly authority over these bad loans and that she was being unfairly targeted. Even after being found a fraudster, Ms. Mairone's famous white collar criminal defense attorney, Marc Mukasey, said, "She's a woman of integrity, ethics and honesty. She never engaged in any fraud because there was no fraud. We are not going to stop fighting for Rebecca".

I imagine this will be his position as long as Bank of America continues to pay her team of high powered lawyers at Attorney Mukasey's White Collar Criminal Defense and Special Investgation's Practice at the International Law Firm of Bracewell and Giuliani.

The leader of Countrywide and former CNBC celebrity, Angelo Mozilo, paid a fine of $67.5 million to settle his fraud charges with the S.E.C., $20 Million of which was paid by Countrywide as part of his modest contractual agreement. Mr. Mozilo paid this modest $67,500,000 fine without admitting any wrongdoing whatsoever!

Where is Ms Mairone's Employed Now?!

You guessed it, back at Jamie Dimon's J.P. Morgan Chase mega bank, as their Home Lending Executive with the prestigious title of Managing Director. What a surprise! What comes around goes around with these mega banks. A spokesman for Jamie Dimon's bank said that JPM was reviewing the jury decision before deciding its next steps with Ms. Mairone.

Recommendation and Epilogue

Avoid these mega banks until we have more visibility on their potential earnings and ability to pay solid and increasing dividends. Investors should consider taking profits in BAC and JPM until the management at these banks are improved and the avalanche of lawsuits subsides.

I also feel that Ms. Mairone was only a cog in the big Bank of America wheel and I hope the judge is lenient with her monetary penalty. I also hope that Jamie Diamond at JPM keeps her as one of his Managing Directors at his bank.

Note-I anticipate getting the usual attacks by trolls. This seems to occur whenever I write a cautious article about being careful with U.S. mega bank stocks with serious legacy issues. Usually, the trolls will not sign their "defense of the fraudsters" with their true bios but I welcome debate on the value of BAC and JPM securities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.