Feds sue Bank of America over 'hustle' home loans
Federal prosecutors in New York are accusing Bank of America of defrauding the government by rushing home loans through the approval process, then selling them to Fannie Mae and Freddie Mac.
Federal prosecutors are turning up the heat on big banks. Just a couple of weeks ago, Wells Fargo was sued for issuing allegedly reckless mortgages; Now, Bank of America is in the crosshairs for mortgages sold by Countrywide, which was later bought by Bank of America.
Former federal prosecutor Jacob Frenkel says the government is clearly out to prove taxpayers were ripped off when the loans were resold to Fannie Mae and Freddie Mac. He says prosecutors could yet claw back "significant sums."
The suit seeks at least a billion dollars. But attorney Tom Ajamie suggests the government-backed agencies that bought the loans bear some responsibility. He says Bank of America could raise as a defense that Fannie and Freddie "should have done their own due diligence, and not purchased certain loan packages." The mortgages involved in the lawsuit were processed between 2007 and 2009.
It's not as if Countrywide could be accused of false advertising at the time. In one TV commercial, a spokeswoman boasted about finding loans for "a growing family with a lot of debt, a young couple with no down payment [and] a business owner whose income was hard to document. I'm with Countrywide, and I got them all approved."
The suit alleges some loan verifications were falsified in a process called "The Hustle." Frenkel says some of those involved might find themselves hustled off to jail: "You start to wonder, are they now moving closer and closer to the kinds of allegations where we may still see some criminal charges?"
It's the first of these mortgage-guarantee cases to allege this kind of outright fraud.