NEW YORK (Reuters) - The U.S. government has failed to produce any evidence to show that Bank of America Corp’s BAC.N Countrywide unit committed mortgage fraud in the run-up to the financial crisis, a lawyer for the bank said on Tuesday.
The remarks came at the end of a four-week trial in which the government said Countrywide lifted controls on mortgages in a process called “Hustle,” and then intentionally sold the resulting bad loans to government-sponsored mortgage giants, the Federal National Mortgage Association (Fannie Mae) FNMA.OB and the Federal Home Loan Mortgage Corp. (Freddie Mac) FMCC.OB.
“We’ve been dragged down the rabbit hole into Alice in Wonderland,” Bank of America lawyer Brendan Sullivan said.
The lawsuit is the first government case to go to trial over the faulty mortgage practices that led to the 2008 financial crisis.
It is also the first such case to go to trial asserting claims under a 1980s law called the Financial Institutions Reform, Recovery and Enforcement Act, which the government has recently begun using to bring cases against banks.
Making a closing statement for the government, Assistant U.S. Attorney Jaimie Nawaday that Countrywide put speed and volume ahead of quality, which was reflected in employees’ bonuses and the elimination of underwriters who could assure loan quality.
“After four weeks of evidence and testimony, this is still a case about greed and lies,” she said.
Rebecca Mairone, the former chief operating officer of Countrywide’s Full Spectrum Lending division and a co-defendant with Bank of America in the case, “didn’t want to hear the process wasn’t working,” Nawaday said.
Countrywide earned $165.2 million selling “Hustle” loans to Fannie and Freddie, according to the government’s evidence. But of the mortgages Countrywide sold them, about 43 percent were materially defective, Nawaday said.
“Quality had become a joke,” Nawaday said.
Sullivan, a partner at the law firm Williams & Connolly, questioned the quality of the government’s own evidence as he launched into his final attack of the government’s case.
The Justice Department said that Countrywide sold about 28,000 such loans to Fannie and Freddie, Sullivan said. Yet the figure had improperly included nearly 17,000 loans produced by Countrywide field offices that weren’t part of the “Hustle” program, he said.
Sullivan said the evidence showed that, contrary to government assertions, Countrywide employees were focused on improving the quality of the mortgages it produces and making corrections along the way as it launched the “Hustle” program.
“I don’t think a fraud case should be an Easter Egg hunt,” Sullivan said.
A lawyer for Mairone, Michael Hefter of Bracewell & Giuliani, sought to call into question the credibility of a former Countrywide executive who filed a whistleblower lawsuit that became the basis of the Justice Department’s case.
The former executive, Edward O‘Donnell, stands to earn up to $1.6 million if the Justice Department succeeds in the case. He also now works at Fannie Mae, Hefter said.
But Hefter said O‘Donnell had “had it out” for Mairone, who today works at JPMorgan Chase & Co JPM.N. O‘Donnell blamed her for minimizing his role in the company and for not landing a high-level position following a division reorganization, Hefter said.
“Mr. O‘Donnell came into this court with a grudge and a mission,” Hefter said.
Should the four men and six women on the jury find the defendants liable, any penalty would be assessed by U.S. District Judge Jed Rakoff, who is presiding over the case.
The Justice Department has said it would seek a penalty equal to either Fannie and Freddie’s losses or the defendants’ gain, whichever was greater.
The mortgage giants’ estimated “gross loss” on the “Hustle” loans was $848.2 million, the Justice Department has said. The “net loss” - or the amount due to the portion of loans the Justice Department says were materially defective - was $131.2 million.
Jurors are expected to begin deliberations Wednesday morning.
The case is U.S. ex rel. O‘Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.
Reporting by Nate Raymond; Editing by Eddie Evans