Federal False Claims Act Suit Filed Against Bank Of America
A civil suit was filed under the Federal False Claims Act on behalf of the US Government alleging that Bank of America Corporation, the second-biggest United States bank by assets, has burdened the American taxpayers with losses after they tainted the quality of home loans sold to Fannie Mae and Freddie Mac, two of the mortgage-finance firms bailed out by the government in 2008. The suit was recently filed in a Manhattan federal court seeking a minimum of $1 billion in damages.
This is not the first encounter with the government that Bank of America has recently faced. Last year alone, the Federal Housing Finance Agency who happens to be the regulator for Fannie Mae and Freddie Mac, sued 18 major banks including Bank of America. The banks were accused of violating federal securities law and other laws in the sale of residential private-label mortgage-backed securities.
The most recent suit filed against Bank of America alleges that the mortgage company that Bank of America obtained in 2008, Countrywide Financial Corporation, had torn apart the quality control checks put in place to regulate how and when their mortgages were disbursed, sold and insured by Fannie Mae and Freddie Mac. This in turn, as Mr. Bharara, U.S. attorney for the Southern District of New York, stated, the bank “made disastrously bad loans and stuck taxpayers with the bill…Countrywide and Bank of America systematically removed every check in favor of its own balance—they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects.”
The recent complaint alleges that in 2007, Countrywide created a new loan origination program called the “Hustle” which eventually forced the default of roughly $1 billion in loans. The “Hustle” was created to eliminate the quality control checks on loans which then led to the increase in the number of loans issued by Countrywide. Among other fraudulent actions during this time, Countrywide also ceased the use of mandatory checklists on underwriting directives, removed compliance specialists from the company and redesigned the company’s compensation structure so that it solely benefited the mortgage lenders on loan volume alone.
Along with the False Claims Act, this suit was also brought under a federal statute known as the Financial Institutions Reform, Recovery and Enforcement Act, which was enacted in 1989 following a wave of bank failures triggered by the savings-and-loan crisis.