Bank of America liable for Countrywide mortgage fraud |

Reuters
By Nate Raymond
| NEW YORK
NEW YORK Bank of America Corp was found liable for fraud on Wednesday over defective
mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few trials
stemming from the financial crisis.
After a four-week trial, a federal jury in New York found the bank liable on one civil fraud charge.
Countrywide originated shoddy home loans in a process called "Hustle" and sold them to
government mortgage giants Fannie Mae and Freddie Mac, the government said.
The four men and six women on the jury also found former Countrywide executive Rebecca Mairone
liable on the one fraud charge she faced.
The U.S. Justice Department has said it would seek up to $848.2 million, the gross loss it said Fannie
and Freddie suffered on the loans. But it will be up to U.S. District Judge Jed Rakoff to decide on the
penalty. Arguments on how the judge will assess penalties are set for December 5.
Any penalty would add to the more than $40 billion Bank of America has spent on disputes stemming
from the 2008 financial crisis.
"The jury's decision concerned a single Countrywide program that lasted several months and ended
before Bank of America's acquisition of the company," Bank of America spokesman Lawrence
Grayson said. "We will evaluate our options for appeal."
Marc Mukasey, a lawyer for Mairone, called his client a "woman of integrity, ethics and honesty,"
adding they would fight on. "She never engaged in fraud, because there was no fraud," he said.
Wednesday's verdict was a major victory for the Justice Department, which has been criticized for
failing to hold banks and executives accountable for their roles in the events leading up to the
financial crisis.

The government continues to investigate banks for conduct related to the financial crisis. The
verdict comes as the government is negotiating a $13 billion settlement with JPMorgan Chase & Co
to resolve a number of probes and claims arising from its mortgage business, including the sale of
mortgage bonds.
RISKY LOANS
The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former
Countrywide executive who stands to earn up to $1.6 million for his role.
The case centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle"
- that government lawyers said Countrywide started in 2007.

The Justice Department contended that fraud and other defects were rampant in HSSL loans
because Countrywide eliminated loan-quality checkpoints and paid employees based on loan volume
and speed.
The Justice Department said the process was overseen by Mairone, a former chief operating officer
of Countrywide's Full Spectrum Lending division. Mairone is now a managing director at JPMorgan.
Amy Bonitatibus, a JPMorgan spokeswoman, said, "We are reviewing the decision."
About 43 percent of the loans sold to the mortgage giants were materially defective, the government
said.
Bank of America bought Countrywide in July 2008. Two months later, the government took over
Fannie and Freddie.
Bank of America and Mairone denied wrongdoing. Lawyers for the bank sought to show the jury that
Countrywide had tried to ensure it was issuing quality loans and that no fraud occurred.
The lawsuit was the first financial crisis-related case against a bank by the Justice Department to go
to trial under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
The law, passed in the wake of the 1980s savings-and-loan scandals, covers fraud affecting federally
insured financial institutions.

The Justice Department, and particularly lawyers in the office of U.S. Attorney Preet Bharara in the
Southern District of New York, have sought to dust off the rarely used law and bring cases against
banks accused of fraud.
Among its attractions, FIRREA provides a statute of limitations of 10 years and allows the
government to bring civil cases for alleged criminal wrongdoing.
Virginia Gibson, a lawyer at the law firm Hogan Lovells, said the Bank of America verdict was a "big
deal because it shows the scope of a tool the government has not used frequently since its
inception."
Gibson and other lawyers say any appeal by Bank of America would likely focus on a ruling made by

the judge before the trial that endorsed a government position that it can bring a FIRREA case
against a bank when the bank itself was the financial institution affected by the fraud.
The case was one of three lawsuits in New York where judges had endorsed that interpretation.
Banks have generally argued that the interpretation is contrary to the intent of Congress, which they
said is more focused on others committing fraud on banks.
Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to
settle government claims instead of face a jury. But Bank of America had said that it "can't be
expected to compensate every entity that claims losses that actually were caused by the economic
downturn."
In a statement, Bharara said Bank of America "chose to defend Countrywide's conduct with all its
might and money, claiming there was no case here."
"This office will never hesitate to go to trial to expose fraudulent corporate conduct and to hold
companies accountable, particularly when it has caused such harm to the public," Bharara said.
In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York
Stock Exchange.
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; Additional reporting by Jonathan Stempel; Editing by Leslie Gevirtz
and Edwina Gibbs)
http://www.reuters.com/article/us-bankofamerica-hustle-idUSBRE99M14B20131024