U.S. prosecutors grill ex-Countrywide exec in BofA mortgage trial

Wed Oct 16, 2013 1:47pm EDT
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By Joseph Ax

NEW YORK (Reuters) - U.S. prosecutors grilled a former executive of Bank of America Corp's (BAC.N: Quote) Countrywide unit in federal court on Wednesday, seeking to show she pressed employees to churn out thousands of substandard loans with little regard for their quality.

Rebecca Mairone, who served as chief operating officer for Countrywide's Full Spectrum Lending Division, is the only individual defendant in the government's civil case against Bank of America over defective mortgages that Countrywide allegedly sold to Fannie Mae FNMA.OB and Freddie Mac FMCC.OB in the months leading up to the 2008 financial crisis.

Assistant U.S. Attorney Jaimie Nawaday pointed out that Mairone had supported contests with names such as "On-Fire February" and "March Madness" for employees who funded the most loans in a given month.

Under questioning from her own attorney, Mairone said the contests were a motivational tool intended to "make it more fun."

"It was certainly not something that got in the way of controls," she said.

The trial, which started in U.S. District Court in Manhattan last month, is based on the government's claims that Countrywide defrauded the government-sponsored mortgage finance companies by creating a process called the "high-speed swim lane" (HSSL), or "Hustle," which sped up approvals for unqualified lenders.

The case is the first brought by the government against a major financial institution over mortgage practices to reach trial since the financial crisis. It stems from a whistleblower lawsuit filed by former Countrywide executive Edward O'Donnell.

The government estimates the mortgage finance companies had a gross loss of $848.2 million on Countrywide's "Hustle" loans. The net loss on loans that were materially defective was $131.2 million, according to prosecutors.   Continued...