Federal prosecutors hit the country's largest bank, Bank of America, with a $1 billion-plus lawsuit civil mortgage fraud earlier this week. Prosecutors accused the bank of coming up with a scheme that defrauded federally-backed mortgage buyers Fannie Mae and Freddie Mac during the financial crisis of 2008-09. This lawsuit is the sixth filed in the past 18 months by the Manhattan U.S. Attorney's office against major U.S. banks over allegations of reckless mortgage practices that contributed to the 2008 financial crisis.
Fannie Mae and Freddie Mac perform a key function in the U.S. financial system. The agencies buy mortgages from banks, package them together, and in turn sell these packages of mortgages to investors. When these agencies buy mortgage loans from banks, it allows the banks to make new loans to aspiring homeowners. Fannie and Freddie also guarantee loans that are packaged into securities and sold to investors.
The complaint filed in U.S. District Court in New York accuses Bank of America of using a loan origination program called the "Hustle" to process mortgage applications at high speeds with little checks done with regard to fraud, misstatements, or other wrongdoing. Officially, the program was called HSSL or High Speed Swim Lane. Employees were awarded bonuses based solely on volume.
The HSSL program allegedly was in operation from at least 2007 through 2009. It was started under Countrywide Financial and Countrywide Home Loans and was continued by Bank of America after it bought Countrywide's operations in a July 2008 transaction.
The result was defective mortgages that defaulted shortly after Bank of America sold them to Fannie Mae and Freddie Mac. These faulty mortgages resulted in losses to the government-backed agencies in excess of $1 billion, sticking U.S. taxpayers with the bill according to prosecutors.
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