14 DAY TRIAL // Federal prosecutors are suing Countrywide Financial, purchased by the Bank of America in July 2008, for causing $1 billion (€760 million) in losses from mortgage loans.
According to the CS Monitor, prosecutor Preet Bharara is asking for $1 billion (€760 million) in damages, describing Countrywide's practice of approving risky mortgage loans as "spectacularly brazen in scope."
"This lawsuit should send another clear message that reckless lending practices will not be tolerated," Bharara stated.
Fannie Mae and Freddie Mac bought loans from Countrywide, following an agreement made with the financial institution that it would respect certain standards in the process of giving out loans.
Countrywide didn't stick to said agreement, instead it eliminated steps in the loan application process, making it impossible for processors to assess if the lender was earning enough to afford a mortgage.
They called their initiative the "Hustle," which is short for "High-Speed Swim Lane," motivating loan officers to secure mortgages at all costs. The program operated under the motto "Loans Move Forward, Never Backward."
Employees would receive signing bonuses for bringing in clients' loans, and their bonuses were calculated on the number of clients they could sign, instead of taking into consideration the borrowed amounts.
In addition to that, if clerks noticed that a borrower was untrustworthy, having failed to pay for loans at other banks, they were encouraged to ignore the red flags and modify the numbers. On this basis, the prosecution is arguing that a "widespread falsification" of mortgage information has occurred.
Last week, the Bank of America even reported that they were issuing more mortgages than this time, last year, while still reporting a loss.
As Countrywide sold loans to Fannie Mae and Freddie Mac, and they went on to resell them to investors, packaged into securities, the two institutions went under and had to be nationalized, in 2008.