The Hustle

0
16
 Prosecutors accused the Bank of America of defrauding the Americans of about $1 billion /business.blogs.starnewsonline.com

Prosecutors accused the Bank of America of defrauding the Americans of about $1 billion /business.blogs.starnewsonline.com

Bank of America has been found liable of fraud

 Article: Alec Salloum – News Writer

On Oct. 23, a Manhattan jury found Bank of America liable of fraud after a civil suit that lasted a month.  The initial civil suit was filed in 2010, by the United States Government against the bank. It largely pertained to the sub-prime mortgages which crippled America in 2008.  This is the first time the US government has successfully gone against a bank and had a jury give a guilty ruling.

In addition to these charges the jury also found Rebecca Mairone liable of fraud.  Mairone is the former senior executive of Countrywide, a company acquired by the Bank of America in 2008, which specialized in loans and mortgages.  Mairone is currently working at JPMorgan Chase, America’s largest bank by assets.

The verdict of Bank of America and Mairone has been seen as a tremendous victory.  The popping of the ‘housing bubble’ was a major factor in the recession and now two figures directly involved in the financial catastrophe have been tried and accused.

US Attorney, Preet Bharara, and top Federal prosecutors, accused the Bank of America of defrauding the American public of approximately $1 billion with what is termed a “High Speed Swim Lane”, or “Hustle”.  Bharara explained the ploy as such, “Borrowers did not have to get their income verified, and loan processors put the data into an automated underwriting system with few checks and balances and widespread falsification… The lawsuit claims Countrywide executives were aware of what was going on, that one review in 2008 showed that 57 per cent of these loans went into default.”

The “Hustle” supposedly started with Countrywide, who once held $490 billion in loans in 2005. These funds were largely collected during the mid 2000s with the housing market swell experienced by the US.  These are among the 57 per cent defective loans mentioned by Bharara.  These loans were then sold off to Fannie Mae, Federal National Mortgage Association, and Freddie Mac, Federal Home Loan Mortgage Cooperation, both of which are government sponsored agencies.  During this time of selling off loans to a Federal Agency Countrywide eliminated several of the procedures and steps taken to ensure that loans were sound and secure.  One example of this practice was the elimination of underwriters from loan contracts and instead relied on incompetent and unqualified clerks.  These clerks were permitted and encouraged to accept almost all loans, despite being high or low risk.

[pullquote]“The lawsuit claims Countrywide executives were aware of what was going on, that one review in 2008 showed that 57 per cent of these loans went into default.”[/pullquote]

This resulted in $850 million in losses, while Countrywide made profits in excess of $165 million.  Effectively, tax payers ended up paying this deficit and the downturn contributed to the 2008 finical recession.  As such the government is now seeking implementation of a fine in the area of $1 billion to recuperate their losses associated with Countrywides Hustle.

One piece of evidence in the case was an email between Mairone and the head of Countrywide underwriting process, stating “The name ‘Hustle’, probably won’t play well in front of a jury”.  This shows that higher ups at Countrywide were aware of the scheme and did nothing to stop it. In fact, Mairone was the director of the hustle and tied company bonuses to how fast clerks could move loans.

These events did happen before Bank of America bought Countrywide but charges are still levied against them.  The bank plans to appeal the recent verdict but has already been subject to $10 billion settlement with Fannie Mae.  In response to the verdict Bank of America has stated that 3,000 of its employees working in the mortgage department will be fired in the coming months.

Comments are closed.

More News