Bank of America Liable for Countrywide Mortgage Fraud
Bank of America liable for faulty loans made by Countrywide Financial Corp.
Bank of America has been found liable for fraud for the sale of faulty loans by its mortgage unit, Countrywide Financial Corp. The Calabasas based Countrywide made large profits churning out risky home loans that were later rendered worthless during the 2008 housing crisis. The company was acquired by BofA during the height of the crisis.
Jurors also found former Countrywide executive Rebecca Mairone liable for her role in the case.
Prior to this ruling federal prosecutors in Los Angeles had not been able to construct a criminal fraud case against Countrywide executives, including the co-founder and Chairman Angelo Mozilo.
But three years ago, Mozilo agreed to pay $67.5 million to avoid going to trial on allegations of fraud and insider trading, an agreement that the Securities and Exchange Commission would later claim as the biggest-ever civil penalty from a corporate boss.
The SEC also settled with two of Mozilo’s top executives at Countrywide.
Preet Bharara, the U.S. attorney, working at the office which sued the bank, said the lender’s practices treated “quality control and underwriting as a joke.”
“In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow,” Bharara said. “That profit, however, was built on fraud, as the jury unanimously found.”
Bharara’s office filed the suit a year ago, and is seeking $848 million in damages from the bank. Any penalties will be determined by a federal judge.
Ruling against Bank of America major victory for federal government
This ruling constitutes a major victory for the federal government as it continues to pursue cases stemming from the financial crisis. The decision is the first civil fraud verdict to be brought against Countrywide. Experts feel this decision might make aggrieved investors more inclined to sue as well as spurn other investigations into Countrywide and other banks involved in the crisis.
Additionally, the verdict may help to inspire the federal government to continue using a new weapon to fight against Wall Street’s misdeeds.”This is potentially a landmark case because it shows the government can successfully sue under this act,” said Jeffrey Manns, a law professor at George Washington University.