Federal prosecutors in New York sued Bank of America on Wednesday, accusing the giant bank of carrying out a mortgage scheme that defrauded the government during the depths of the financial crisis.
In a civil complaint that seeks to collect $1 billion in damages from the bank, the Justice Department took aim at a home loan program known as the “hustle,” a venture that Bank of America inherited with its purchase of Countrywide Financial during the crisis. Prosecutors say the effort, created in 2007 but kept alive through 2009 by Bank of America, was designed to churn out mortgages at a rapid pace without proper checks on wrongdoing. The bank then sold the “defective” loans to Fannie Mae and Freddie Mac, the government-controlled housing giants, which were stuck with heavy losses and a glut of foreclosed properties.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” Preet Bharara, the United States attorney in Manhattan, said in a statement. Mr. Bharara brought the case with the inspector general of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, and the government watchdog for the bank bailout program.
The case is the latest legal headache for Bank of America stemming from its acquisition spree during the crisis. The bank in September paid $2.4 billion to settle a securities class-action lawsuit that it misled investors about the takeover of Merrill Lynch.
The Countrywide case filed on Wednesday also overlaps with a number of lawsuits that government agencies are pursuing against Wall Street. The case builds on the Federal Housing Finance Agency’s decision last year to sue 17 big banks over losses sustained by Fannie Mae and Freddie Mac. The twin mortgage companies, bailed out by taxpayers in 2008, are also hammering firms like Bank of America to repurchase billions of dollars in bad loans.
A spokesman for Bank of America did not immediately return a request for comment.
This article, “Federal Prosecutors Sue Bank of America Over Mortgage Program,” originally appears at the New York Times News Service.