Though there have been considerable efforts made to remediate many of the problems stemming from the foreclosure crisis and robo-signing controversy, one of the nation’s foremost participants has remained relatively unscathed. However, that all changed with one recent lawsuit.
Countrywide, the controversial mortgage issuer that routinely pushed subprime loans for customers who were not qualified – with the full knowledge that the borrowers would default – and which is now owned by Bank of America, was recently hit with a civil suit from the federal government, according to the U.S. Department of Justice. The suit seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
The complaint alleges that Countrywide, and Bank of America, engaged in the process of pushing out and approving mortgages at a rapid rate between 2007 and 2009, without using any of their built-in quality checkpoints, the report said. They then sold those loans to Fannie Mae and Freddie Mac, resulting in more than $1 billion in losses and many foreclosures across the country.
“The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle,’ Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill,” said Manhattan U.S. Attorney Preet Bharara. “As described, Countrywide and Bank of America systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects.”
“The Hustle” is actually shorthand for what Countrywide – and later Bank of America – called the plan internally: HSSL, or “High-Speed Swim Lane,” the report said. The plan removed numerous quality control tools in the origination process and even removed compliance specialists from the equation, despite the fact that their stated job was to make sure all loans satisfied the necessary conditions the company laid out. About 37 percent of all mortgages pushed through in this way had some sort of defect, compared with between 4 and 5 percent seen industry-wide.
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This follows a number of other recent mortgage lawsuits. Perhaps the most notable case in recent months in which lenders were made to account for their practices during the foreclosure crisis was the settlement between 49 states’ attorneys general and the nation’s largest mortgage issuers.
Image: Paul Lowry, via Flickr