Bank of America Ordered to Pay Nearly $1.3 Billion in Mortgage Case

By MICHAEL CORKERY and BEN PROTESS
JULY 30, 2014 2:05 PM July 30, 2014 3:58 pm

Rebecca Mairone, a former manager at Countrywide, led a mortgage-writing program nicknamed the “hustle.”Credit Joshua Roberts/Bloomberg News, via Getty Images

A federal judge has ordered Bank of America to pay nearly $1.3 billion in penalties for its role in defrauding Fannie Mae and Freddie Mac into buying thousands of defective mortgages, dealing yet another legal blow to a bank that was one of the main actors in the financial crisis. <

The penalty handed down on Wednesday by Judge Jed S. Rakoff of the Federal District Court in Manhattan comes nine months after a jury found Bank of America liable for selling the questionable loans to Fannie and Freddie, the government-controlled mortgage finance giants, in the run up to the crisis.

The jury also found a top manager at Bank of America’s Countrywide Financial unit liable for the sale of the loans, which were originated as part of a program nicknamed the “hustle.” Federal prosecutors in Manhattan had argued that the Hustle program, which linked bonuses to how fast bankers could originate loans, led Countrywide to “cut corners” as it installed “unqualified and inexperienced” loan processors and tore down internal controls that were in place to root out risky borrowers.

The judge fined the former executive, Rebecca S. Mairone, $1 million for her role in the scheme.
Known for having strong views on financial fraud, Judge Rakoff issued a sharp rebuke of the bank’s misconduct.

“It was from start to finish the vehicle for a brazen fraud by the defendants,” he wrote in a 19-page opinion, “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.”

The penalty, which the bank has been ordered to pay in full by Sept. 2, is another steep price to be paid by Bank of America as it tries to put its legal troubles behind it. Judge Rakoff’s ruling comes just as the bank is locked in settlement talks with the Justice Department over a broader deal to resolve the sale of mortgage securities that imploded amid the crisis. The Justice Department has sought a roughly $17 billion settlement, according to people briefed on the talks, including a mixture of cash and relief to struggling consumers.

In determining the penalty, Judge Rakoff said he did not calculate the amount based on how much Fannie and Freddie lost from the mortgages, but rather on how much they paid for mortgages that prosecutors proved to the jury were defective – about 42 percent of a total of 17,611 loans.

Ms. Mairone, the judge ruled, can pay the fine in installments over a period of time. That decision, he explained. reflected a concern that the government’s demand for a lump sum $1.2 million penalty “would strain her resources to the limit.”

Preet Bharara, the United States attorney in Manhattan who filed the case, cheered Judge Rakoff’s ruling.

“Today, Judge Rakoff imposed stiff penalties in a case brought by this office to punish and deter the fraudulent and reckless lending activities of a financial institution leading up to the financial crisis in 2008,” Mr. Bharara said in a statement.

http://dealbook.nytimes.com/2014/07/...=top-news&_r=0