US sues BofA for $1bn over home loans

By Tom Braithwaite in New York

The US Department of Justice sued Bank of America for more than $1bn on Wednesday, alleging the bank committed civil fraud by selling defective home loans to US government-backed mortgage companies.

The lawsuit said that Countrywide, the California-based mortgage originator that BofA bought in 2008, implemented a process called the “Hustle” to deal with loans at high speed without checking their quality.

Thousands of loans were then sold to Fannie Mae and Freddie Mac, which guarantee most US mortgages, and later defaulted, the Justice Department’s lawsuit claims.

“As described, Countrywide and Bank of America systematically removed every check in favour of its own balance – they cast aside underwriters, eliminated quality controls, incentivised unqualified personnel to cut corners, and concealed the resulting defects,” said Preet Bharara, US attorney for the southern district of New York.

“These toxic products were then sold to the government sponsored enterprises as good loans.”

BofA has been bogged down with mortgage losses and litigation ever since the financial crisis, paying billions of dollars in compensation for bad loans. The bank could not immediately be reached for comment.

US sues BofA for $1bn over home loans - FT.com