U.S. sues Bank of America over "Hustle" mortgage fraud

Wed Oct 24, 2012 10:18pm EDT
 
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By Jonathan Stempel

NEW YORK (Reuters) - The United States filed a fraud lawsuit against Bank of America Corp, accusing it of causing taxpayers more than $1 billion of losses by selling thousands of toxic mortgage loans to Fannie Mae and Freddie Mac.

Wednesday's case, originally brought by a whistleblower, is the U.S. Department of Justice's first civil fraud lawsuit over mortgage loans sold to the big mortgage financiers, bailed out in 2008.

It also compounds the legal problems that Bank of America Chief Executive Brian Moynihan faces over the second-largest U.S. bank's disastrous July 2008 purchase of Countrywide Financial Corp, once the nation's largest mortgage lender.

According to a complaint filed in Manhattan federal court, Countrywide in 2007 invented and Bank of America continued a scheme known as the "Hustle" to speed up processing of residential home loans.

The program, also known as HSSL for "High Speed Swim Lane," operated under the motto "Loans Move Forward, Never Backward," and tried to eliminate "toll gates" designed to ensure that loans were sound and not tainted by fraud, the government said.

The program removed underwriters from all but the riskiest loans and replaced them with loan specialists, previously considered unqualified even to answer borrower questions.

This led to "defect rates" approaching 40 percent, roughly nine times the industry norm, but Countrywide concealed this from Fannie Mae and Freddie Mac, and even awarded bonuses to staff to "rebut" the problems being found, the government added.

Defaults and foreclosures soared, yet the bank has resisted buying back many of the defaulted loans from the scheme, which ran through 2009, the government added.   Continued...

 
People walk next to a Bank of America's branch in New York October 24, 2012. The United States filed a fraud lawsuit against Bank of America Corp, accusing it of causing taxpayers more than $1 billion of losses by selling thousands of toxic mortgage loans to Fannie Mae and Freddie Mac. REUTERS/Eduardo Munoz