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UPDATE 1-U.S. sues Bank of America over "Hustle" mortgage fraud

* US says bank sold toxic loans to Fannie Mae, Freddie Mac

* Over $1 billion losses said to be caused

* Scheme said to begin at Countrywide Financial

* Bank of America not immediately available for comment

Oct 24 (Reuters) - The United States filed a civil mortgage fraud lawsuit against Bank of America Corp, accusing it of selling thousands of toxic home loans that later defaulted to Fannie Mae and Freddie Mac, leading to more than $1 billion of losses.

U.S. Attorney Preet Bharara in Manhattan said the scheme, known as the ``Hustle'' -- a modification of ``HSSL,'' which stood for ``High-Speed Swim Lane'' -- was invented in 2007 by Countrywide Financial Corp, which Bank of America bought the following year, and lasted through 2009.

He said the scheme was deliberately designed to process loans at high speed without checks on their quality, and resulted in ``countless'' foreclosures.

Bank of America did not immediately respond to requests for comment.

Wednesday's lawsuit seeks triple damages under the federal False Claims Act, as well as civil penalties.

The case is the U.S. Department of Justice's first civil fraud lawsuit over mortgage loans sold to Fannie Mae or Freddie Mac. Bharara said it is his office's sixth lawsuit in the last 1-1/2 years against a major U.S. bank over alleged reckless mortgage practices leading up to the recent financial crisis.

Federal regulators seized Fannie Mae and Freddie Mac on Sept. 7, 2008 and put them into a conservatorship.

In afternoon trading, Bank of America shares were up 9 cents at $9.45 on the New York Stock Exchange.

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S, District Court, Southern District of New York, No. 12-01422.