A New York jury has ruled that Countrywide, formerly the largest US subprime mortgage company and one of its former executives are guilty of fraud. The company was acquired by Bank of America (BoA) in 2008 as the US housing market entered a sharp downturn
At the end of a four-week trial, Countrywide was found guilty of defrauding the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation – aka Fannie Mae and Freddie Mac – at the height of the housing crisis. The US government claims Fannie and Freddie made a gross loss of $848m on suspect loans they bought from Countrywide – an amount that it has said it intends to recoup from BoA.
The judgment marks the first time a bank has been found by a US court to be responsible for wrongdoing tied to its dealings in the financial crisis. The jury also found former Countrywide executive Rebecca Mairone guilty of fraud. Mairone was the only individual named as a defendant in the government’s lawsuit.
According to the lawsuit, the wrongdoing mostly took place before BoA acquired Countrywide, but continued into 2009, “well after” the acquisition.
Prosecutors in the office of Preet Bharara, the US attorney for the southern district of New York, alleged that Countrywide ran a scheme called the High Speed Swim Lane (HSSL) or ‘Hustle’ before the US property market downturn, aimed at funnelling a rapidly deteriorating portfolio of home loans on to Fannie and Freddie.
Bharara alleged that the programme stripped back underwriter reviews for loans, leaving few or no controls in the loan approval process, with even loans in which the borrower’s income wasn’t independently verified going unreviewed by underwriters.
Countrywide assured Fannie and Freddie that underwriting standards had been tightened, according to Bharara. At the same time, the company “eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud and other serious defects.”
BoA plans to appeal and said in a statement: “The jury’s decision concerned a single Countrywide programme that lasted several months and ended before BoA’s acquisition of the company. We will evaluate our options for appeal.”
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