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UPDATE 1-Bank of America liable for Countrywide mortgages fraud

Nate Raymond
Wednesday, 23 Oct 2013 | 4:20 PM ET

NEW YORK, Oct 23 (Reuters) - Bank of America Corp was found liable for fraud on Wednesday on claims related to defective mortgages sold by its Countrywide unit, a major win for the U.S. government in one of the few big trials stemming from the financial crisis.

Following a four-week trial, a federal jury in Manhattan found the Charlotte, North Carolina bank liable on one civil fraud charge. Countrywide originated shoddy home loans in a process called "Hustle" and sold them to government mortgage giants Fannie Mae and Freddie Mac, the government said.

The four men and six women on the jury also found former Countrywide executive, Rebecca Mairone, liable on the one fraud charge facing her.

A decision on how much to penalize the bank would be left to U.S. District Judge Jed Rakoff. The U.S. Department of Justice has said it would ask Rakoff to award up to $848.2 million, the gross loss it said Fannie and Freddie suffered on the loans.

Bank of America bought Countrywide in July 2008. Two months later, the government took over Fannie and Freddie.

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Bank of America spokesman Lawrence Grayson said. "We will evaluate our options for appeal."

Wednesday's verdict marked a major victory for the Justice Department, which has come under criticism for failing to hold banks and executives accountable for their roles in the events leading up to the financial crisis.

In late afternoon trading, Bank of America shares were down 27 cents at $14.25 on the New York Stock Exchange.

WHISTLEBLOWER

The lawsuit stemmed from a whistleblower case originally brought by Edward O'Donnell, a former Countrywide executive who stands to earn up to $1.6 million if the government prevailed.

It centered on a program called the "High Speed Swim Lane" - also called "HSSL" or "Hustle" - that government lawyers said Countrywide started in 2007 as it sought to move away from subprime lending and issue prime loans.

Prime loans are considered less risky than subprime. But the Justice Department said fraud and other defects were rampant in HSSL loans, because Countrywide eliminated loan quality checkpoints and paid employees based on loan volume and speed.

The Justice Department said the process was overseen by Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending division.

Mairone later became a managing director at JPMorgan Chase & Co. That bank had no immediate comment.

In 2012, the Justice Department intervened in O'Donnell's lawsuit and filed its own complaint under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. That law, passed in the wake of the 1900s savings-and-loan scandals, covers fraud affecting federally insured financial institutions.

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.

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