Are Victims of Mortgage Lender Fraud about to get their Justice?

The DOJ has filed a lawsuit against BOA on so-called “hustle mortgages” that accuses the lender of selling bad mortgages to Fannie and Freddie.  I’m going to follow this, believe me, because it represents a ‘big deal’ for any one that does research in banking, lending, or moral hazard.  I’m not a lawyer–nor do I play one on TV–so the finer parts of the law are not in my knowledge ballpark. I do have some knowledge of home value through the apprenticeship I did with a home appraisal service.  However, I expect this to influence both lending behavior and the willingness of larger banks to merge with banks in bad shape.  The latter is a trick used by regulators to deal with a problem bank.  Bank of America is basically being sued over mortgages originated through a Countrywide program called the “hustle mortgage”.  It supposedly continued the program after its merger to Countrywide.

This is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac.

Manhattan U.S. Attorney Preet Bharara said: “For the sixth time in less than 18 months, this Office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill. As described, Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects. These toxic products were then sold to the government sponsored enterprises as good loans. This lawsuit should send another clear message that reckless lending practices will not be tolerated.”

FHFA Inspector General Steve A. Linick said: “To prevent fraud, conducting quality reviews and complying with underwriting standards are critical. Countrywide and Bank of America allegedly engaged in fraudulent behavior that contributed to the financial crisis, which ultimately falls on the shoulders of taxpayers. This type of conduct is reprehensible and we are proud to work with our law enforcement partners to hold all parties accountable.”

SIGTARP Special Inspector General Christy Romero said: “The complaint filed today alleges serious and significant misrepresentations that Bank of America made before and during the time taxpayers invested $45 billion in TARP funds in the bank. SIGTARP and its law enforcement partners will investigate allegations of wrongdoing by TARP recipients, particularly conduct that results in substantial losses to the government and taxpayers.”

Are we beginning to see the DOJ move on the banksters?  Has this got anything to do with the stampeded to Romney by all things Wall Street?

The Bank of America lawsuit is the sixth brought against a major U.S. bank by the Justice Department in less than 18 months over what Bharara called “reckless mortgage practices in the lead-up to the financial crisis.”

This month, the government sued Wells Fargo & Co. (WFC), one of the biggest mortgage lenders and service, over claims the San Francisco-based bank made reckless loans that caused losses for a federal insurance program when they defaulted. The complaint alleges misconduct over more than a decade related to the bank’s participation in a Federal Housing Administration program and follows similar cases against other lenders including Citigroup Inc. (C) and Deutsche Bank AG. (DB)

A state and federal task force is investigating misconduct in the bundling of mortgage loans into securities before the housing bust. The group’s first legal action was this month, when New York Attorney General Eric Schneiderman sued JPMorgan Chase & Co. (JPM), the biggest U.S. lender, over defective mortgage loans underlying securities, a suit he said would act as a template for other such cases. The bank has denied wrongdoing.

Fannie Mae and Freddie Mac losses totaled more than $1 billion, Bharara said. The Justice Department’s complaint was brought under the federal False Claims Act, which allows for triple damages.

Fannie Mae and Freddie Mac have operated under U.S. conservatorship since 2008, when they were seized amid subprime mortgage losses that pushed them toward insolvency.

“Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters,” Larry DiRita, a spokesman for the Charlotte, North Carolina-based company, said in an e-mailed statement. “The claim that we have failed to repurchase loans from Fannie Mae is simply false. At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

The government said in the complaint that Bank of America “systematically removed every check” in the issuance of mortgages and then sold the “flawed” mortgages to Fannie Mae and Freddie Mac. Both relied on Bank of America’s assurances that the mortgages they purchased complied with their standards, the U.S. said.

According to the complaint, Countrywide initiated “the Hustle” in 2007 just as mortgage loan defaults were increasing nationally and Fannie Mae and Freddie Mac were tightening their loan purchasing standards to reduce risk. The Countrywide program did just the opposite, the U.S. said.

This suit is based on information from a whistle blower and has been in the works since February.

According to court records, Wednesday’s case was originally filed under seal in February by Edward O’Donnell, a Pennsylvania resident and former executive vice president at Countrywide Home Loans who had worked there between 2003 and 2009.

In that complaint, O’Donnell said Countrywide and later Bank of America dismissed his “numerous” objections to the Hustle, and that he became “one of the lone voices” in his division pointing to escalating loan quality issues and defaults.

O’Donnell could not immediately be reached for comment, and his lawyer did not immediately respond to requests for comment.

Grab your bowl of popcorn.  This should be interesting.

23 Comments on “Are Victims of Mortgage Lender Fraud about to get their Justice?”

  1. RalphB says:

    This could be fascinating and complicated as hell, if the defendants can make it so. We can expect stacks of paperwork to reach the moon. But it’s about time the DOJ took a shot at these cretins.

  2. roofingbird says:

    It would be nice if a connection between skyrocketing home prices and skeevy loans can be made. Then maybe we could sue for price manipulation.

    • ANonOMouse says:

      I think I read that there’s some evidence to support that some appraisers, some home builders and lenders were working hand-in-glove. Quid pro quo for everyone but the borrower.

    • RalphB says:

      That was one of the main problems back with the S&L debacle in the 80s. Flipping and re-flipping properties to drive up the prices, between groups of investors.

    • NW Luna says:

      Naral: Women making their own decisions about their bodies isn’t radical, it’s rational.

  3. ecocatwoman says:

    OT – does anyone know anything about Concerned Veterans for America? I just got a robocall about their We Can Do Better bus tour. I checked out their website: They are concerned about the debt & sequestration, among other things. Sounds Republican to me, but I could be wrong.

    • RalphB says:

      Right wing as hell. Here’s their president. They were the group swift boating Obama for leaks about Seals in the Osama mission.

      Peter Brian Hegseth (born June 6, 1980) is a former Executive Director of Vets For Freedom and a senior counterinsurgency instructor at the Counterinsurgency Training Center in Kabul with the Minnesota National Guard.[1] Hegseth has made multiple appearances on national television as a military analyst and lost the Republican party endorsement for the United States Senate election in Minnesota, 2012 to Kurt Bills. Pete is currently the CEO of Concerned Veterans for America.

      • Fannie says:

        Sure the hell is, there sole purpose is to put Romney in the White House. Makes you wonder how much they are being paid, cash, cars, houses, jobs, drugs…………whatever, these individual’s are spreading the hate, every single morning they wake up.

      • ecocatwoman says:

        Thanks, Ralph. Their website seemed to have “the coded phrases” but didn’t blatantly come across as “We Hate Obama.” If I had the time & energy I’d consider showing up with my Obama/Biden yard sign, but I’d probably be beaten or shot.

    • pdgrey says:

      I haven’t but it sure sounds like the crazy right wing. This should give the Obama hate movie a run for the money and make the right wing jump off a cliff.

    • dakinikat says:

      Have you gotten your copies of the Obama hate movies yet? I was reading in NYT they were mailing them out to Florida voters.

      • pdgrey says:

        I haven’t got mine yet, but I live in Volusia County, Fl, it tends to be more Democratic. But since 2010, the Tea Party and the amount of yard signs for Romney I guess I should be getting one any day. Hell this week end I had to put up with the Historic Band Shell being taken over by Mittens and Eddie. It’s 5 miles from my house.

      • PD, you keeping an eye out for Sandy?

  4. pdgrey says:

    Rachel is great tonight! Who gets to decide?