Bank of America faces $1.3 billion fine for Countrywide's risky mortgages
A federal judge imposed a $1.3 billion fine against Countrywide Financial, owned by Bank of America, for selling risky mortgages. This is the first time a bank has been found liable for mortgage fraud leading up to the financial crisis.
New York — A federal judge imposed a $1.3 billion civil penalty against Bank of America on Wednesday for its role in selling risky mortgages to Fannie Mae and Freddie Mac that were advertised as safe investments.
The fine was against Countrywide Financial, which Bank of America purchased in 2008 as the financial crisis was unfolding. It is the latest legal ruling against Wall Street.
A
jury found in October 2013 that BofA was liable for Countrywide's role
in selling risky loans to the government housing agencies through a
program nicknamed the "Hustle" from August 2007 to May 2008. The jury
found that Countrywide executives deliberately misrepresented the
quality of mortgages being sold.
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In his blunt ruling, Judge Jed Rakoff
said the program was "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."
This is the first time a bank or its
executives have been found liable under federal law for mortgage fraud
leading up to the financial crisis, said Preet Bharara, U.S. Attorney
for the Southern District of New York, in a statement. It is also the
first time civil penalties have been imposed on a bank or its executives
for mortgage fraud.
"(It is) clear that mortgage fraud cannot be
viewed as simply another cost of doing business in the financial world,"
Bharara said.
A spokesman for Bank of America, which is based in
Charlotte, North Carolina, said the bank is exploring its legal options
following Rakoff's decision, including an appeal.
"We believe (the
penalty) simply bares no relation to a limited Countrywide program that
lasted several months and ended before Bank of America's acquisition of
the company," BofA spokesman Larry Grayson said.
Countrywide was
one of many mortgage companies that sold risky mortgages to Fannie Mae
and Freddie Mac leading up to the housing bubble popping and subsequent
financial crisis.
Bank of America, JPMorgan Chase
and other big Wall Street banks have paid out billions of dollars in
legal settlements for their roles in the financial crisis. For JPMorgan,
the settlements mostly stemmed from its purchases of Bear Stearns and
Lehman Brothers; in Bank of America's case, it was mainly from its
acquisitions of Countrywide and Merrill Lynch.
