'Massive fraud' at center of trial against BofA over U.S. mortgages

Wed Sep 25, 2013 1:33am EDT
 
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By Nate Raymond

NEW YORK (Reuters) - Bank of America Corp's Countrywide unit placed profits over quality in a "massive fraud" selling shoddy mortgages to Fannie Mae and Freddie Mac, a U.S. government lawyer said on Tuesday.

The claim came at the start of the first case by the government to go to trial against a major bank over defective mortgage practices leading up to the 2008 financial crisis.

Pierre Armand, a lawyer in the civil division of the U.S. Attorney's Office in Manhattan, said Countrywide made $165 million selling loans that it promised were investment quality to Fannie and Freddie.

"What documents and witnesses will show is that the promise of quality was largely a joke," Armand said.

But Brendan Sullivan, a lawyer for Bank of America, said Countrywide had sought to ensure the loans it made were good and that no fraud occurred.

"No fraud," he said. "Two words. That's the heart and soul and body of the defense. No fraud. And that's what the evidence will show."

Filed in October, the lawsuit blames the bank for losses suffered by Fannie Mae and Freddie Mac on thousands of prime mortgages that later defaulted. Fannie and Freddie, government-sponsored enterprises that underwrite mortgages, were taken over by the government in 2008.

The Justice Department says the loans were pushed out through a Countrywide program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that began in 2007 amid rising mortgage delinquency and default rates and as Fannie and Freddie were tightening underwriting guidelines.   Continued...

 
The logo of the Bank of America is pictured atop the Bank of America building in downtown Los Angeles November 17, 2011. REUTERS/Fred Prouser