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Aug
2014
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A Billion Here, a Billion There: Bank of America Will Challenge Latest Mortgage Crisis Settlement

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The Justice Department has ordered Bank of America to pay $1.27 billion for fraud that occurred at Countrywide Financial Corp., which sold bad loans to Freddie and Fannie Mac as part of a program it had named “Hustle.”  The program was designed to move mortgage products quickly with little regard for quality. It played a major role in the lead up to the 2007 financial meltdown.  

Federal District Judge Jed Rakoff issued a harsh condemnation of the program, saying, “It was from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.”

The $1.27 billion figure is much lower than the $2.1 billion the government had originally sought.  Judge Rakoff based his figure on the 17,611 “Hustle”-related loans, for which Fannie Mae and Freddie Mac paid nearly $3 billion.  The lesser figure resulted from the fact that many of these loans were toxic but not all were bad.

Rakoff’s ruling also orders former Countrywide mortgage manager Rebecca Mairone to pay $1 million.  Mairone was found guilty of civil fraud by a jury last October, but who will eventually pay the $1 million fine is unclear, according to the Wall Street Journal:

The $1 million fine for Ms. Mairone could stand as a rare example of a Wall Street official having to pay a fine out of his or her own pocket for conduct related to the financial crisis. The judge issued guidelines for how the fine should be paid from her own income. A Bank of America spokesman declined to comment on whether the bank would assist Ms. Mairone in that effort.

While other executives at Bank of America, such as former Chief Executive Kenneth Lewis and former Chief Financial Officer Joseph Price, have agreed to multimillion-dollar payments as part of settlements, those were both covered by the bank, The Wall Street Journal previously reported. The New York attorney general had accused Mr. Lewis and Mr. Price of failing to disclose ballooning losses at Merrill Lynch & Co., which Bank of America agreed to buy in 2008. A lawyer for Mr. Lewis declined to comment, while a lawyer for Mr. Price said the bank was required “to indemnify him for this cost of litigation.”

Former Countrywide Chief Executive Angelo Mozilo and other executives also agreed to pay fines and other penalties related to financial-crisis-era charges. Mr. Mozilo agreed to pay $67.5 million, part of which he paid out of his own pocket, while former Countrywide Chief Financial Officer Eric Sieracki was fined $130,000. David Sambol, the firm’s former president, was penalized $5.52 million.

Following the ruling, Bank of America spokesman Lawrence Grayson told the Charlotte Observer that the bank would review its legal options. They never go quietly:

“We believe that this figure simply bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company,”  said Wednesday.
“We’re reviewing the ruling and will assess our appellate options,” he said.

Bank of America is nearing another settlement with the Justice Department to resolve issues with its mortgage backed bonds, says Bloomberg:

The amount of the settlement under discussion has ranged from $13 billion to $17 billion, one of the people said. The discussions include how much money will be paid in cash and how much in consumer relief.

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