Government mortgage fraud lawsuit against BofA headed to trial

Tue Aug 27, 2013 3:32pm EDT
 
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By Jonathan Stempel

NEW YORK (Reuters) - A U.S. government lawsuit accusing Bank of America Corp (BAC.N: Quote) of fraud in the sale of billions of dollars of toxic mortgage loans to Fannie Mae FNMA.OB and Freddie Mac FMCC.OB is on track to go to trial next month after a judge rejected the bank's bid to dismiss the case.

In an order made public on Tuesday, U.S. District Judge Jed Rakoff in Manhattan said there were "genuine factual disputes" that justify letting the case continue against the second-largest U.S. bank.

The order clears the way for the case to proceed toward a scheduled September 23 jury trial. Only a few prominent cases tied to the financial crisis have ever gone to trial.

Rakoff also said he expects to decide before trial which theories he will allow the government to pursue. He said he would explain his reasons for Tuesday's order "in due course."

The U.S. Department of Justice sued Bank of America last October, joining a whistleblower lawsuit originally brought by former Countrywide Financial Corp executive Edward O'Donnell.

It alleged that Countrywide, acquired by Bank of America in July 2008, caused more than $1 billion of taxpayer losses by selling defective home loans to Fannie Mae and Freddie Mac, the mortgage financiers seized by the government in September 2008.

The government said the loans went through a program called the "High Speed Swim Lane" - also known as "HSSL" and "Hustle" - that Countrywide devised in 2007 to speed up loan processing, even if it meant ignoring safeguards to help ensure that loans were sound and not tainted by fraud.

Bank of America, in court papers, countered that HSSL was a "legitimate and good-faith effort" to develop systems for making prime loans after the collapse of the subprime market.   Continued...

 
People walk past a branch of Bank of America in New York's financial district April 28, 2009. REUTERS/Brendan McDermid