Econintersect: U.S. District Court Judge Jed Rakoff handed down an order for Bank of America (BofA) to pay $1.27 billion to Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC) for restitution of losses from defective mortgages sold by the former Countrywide Financial Corp. which was merged into BofA in 2008. The only individual charged in the case, former Countrywide vice president Rebecca Mairone, was ordered to pay $1 million.
The prosecution had sought $2.1 billion. At the time of the original verdict last October it had been estimated that losses suffered by the two government-controlled mortgage companies would total about $848 million. But during discovery in the penalty phase which ended last December a larger amount of securities were found to be involved. Reuters reports the total paid to Countrywide by Fannie and Freddie for the mortgages in question was almost $3 billion. After review Judge Rakoff ruled that the prosecution could prove only loses of 43% or $1.27 billion, his final award.
An quote from Reuters in the 24 October 2013 GEI News article:
The case centered on a program called the “High Speed Swim Lane” – also called “HSSL” or “Hustle” – that government lawyers said Countrywide started in 2007.
The Justice Department contended that 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 is now a managing director at JPMorgan.
About 43 percent of the loans sold to the mortgage giants were materially defective, the government said.
In his ruling on damages, Judge Rakoff called the Countrywide actions “brazen“. He wrote:
“While the HSSL process lasted only nine months, it was from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.”
