Bank of America Liable For Mortgage Fraud
On October 23, 2013, Bank of America was found liable for civil fraud in a federal lawsuit filed in New York. The U.S. Department of Justice brought the suit against B of A based on bad home loans sold to Freddie and Fannie. The loans, which were isssued by Countrywide, did not meet underwriting standards and were not as hihg-quality as the bank had claimed when it sold the loans to Freddie and Fannie. Former Countrywide executive Rebecca Marione was also found liable for fraud as an individual.
It is good to see the DOJ finally holding B of A, Chase, and others accountable for the behavior that directly contributed to the collapse of the economy. DOJ will seek up to $848.2 million in damages, which it claims is Freddie and Fannie's gross loss on the loans. Bank of America has already spent $40 billion settling disputes stemming from its involvement in the financial crisis.
This case is unique in that it was brought pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). FIRREA was enacted after the S&L scandal in the 1980s and involves fraud affecting federally-insured financial institutions. In this case, the DOJ was able to sue B of A even though B of A was the entity harmed by the fraud. This case is an example of the expansive reach of FIRREA. Although DOJ has not used FIRREA extensively thus far, this may mark a change in course.
At the end of the day, this may be cold comfort to those who lost their homes, but recovering the money that Freddie and Fannie lost will return a large chunk of money lent to the GSEs by taxpayers.