A U.S. judge is considering an alternative that could result in Bank of America paying much less than the $863.6 million the government is seeking as a penalty for the sale of defective mortgages before the financial crisis.
At a hearing on Thursday, U.S. District Judge Jed Rakoff in Manhattan asked the bank and the Justice Department to brief him on the alternative, which is based on the gains rather than the losses resulting from the sales.
The hearing followed a jury verdict on Oct. 23 in which a federal jury found Bank of America liable for fraud for selling substandard mortgages to government sponsored mortgage finance companies Fannie Mae and Freddie Mac.
The verdict was a big win for the government in its efforts to hold Wall Street accountable for the financial crisis, and the Justice Department has requested a penalty based on the gross losses Fannie Mae and Freddie Mac incurred.
But at Thursday's hearing Rakoff said he wanted a "more full presentation'' on how to calculate the penalty based instead on how much Countrywide gained through the fraud, calling it a simpler approach.
(Read more: Trade deals won't water down regs: Treasury's Lew)
The judge said that his comments should not signal how he will ultimately rule. Rakoff said he would issue a decision sometime in February.
A penalty based on gains rather than losses would likely be significantly smaller than prosecutors in U.S. Attorney Preet Bharara's office have requested.
Evidence the government presented at trial indicated that Countrywide made $165.2 million selling the loans.
The case, launched in October 2012, focused on a mortgage lending process at Countrywide called the "High Speed Swim Lane,'' or alternatively "HSSL'' or "Hustle,'' that the government said emphasized speed and quantity over quality.
The Department of Justice wants Bank of America to pay $863.6 million based on the gross loss incurred on the HSSL loans by Fannie and Freddie, which the government took into conservatorship in 2008.