Bank of America’s $1.27b penalty reversed by court

US mortgage fraud case

NEW YORK, May 23, (RTRS): A US appeals court on Monday overturned a jury’s finding that Bank of America Corp was liable for mortgage fraud leading up to the 2008 financial crisis, tossing a $1.27 billion penalty and dealing the US Justice Department a major setback.

The 2nd US Circuit Court of Appeals in New York ruled that the proof was insufficient under federal fraud statutes to establish liability in connection with a mortgage program called “Hustle” run by the former Countrywide Financial Corp.

The Justice Department claimed Countrywide, which Bank of America bought in July 2008, defrauded government-sponsored mortgage finance giants Fannie Mae and Freddie Mac by selling them thousands of toxic loans.

But US Circuit Judge Richard Wesley said the evidence at most showed Countrywide breached contracts to sell Fannie and Freddie loans of a specified quality, but that no proof existed to show it intended to deceive the buyers when those contracts were executed.

As a result, he said, “the trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises.”

Bank of America in a statement said it was pleased with the ruling. A spokesman for Manhattan US Attorney Preet Bharara, whose office oversaw the lawsuit and took it to trial, had no immediate comment.

The lawsuit, which was filed in 2012 following a whistleblower’s complaint, was one of the highest-profile government enforcement actions to go to trial over events related to the US housing meltdown.

A federal jury in 2013 found Bank of America and Rebecca Mairone, a former midlevel Countrywide executive, liable for fraudulently selling shoddy loans originated by its “High Speed Swim Lane” program, also called HSSL or Hustle.