As previously predicted by the CFS-Lawblog, the federal government filed suit today (10/24/12) against another major lender under the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). This time the government is seeking more than $1 billion dollars in damages and civil penalties against Bank of America regarding loans sold to Fannie Mae and Freddie Mac. In announcing the lawsuit, U.S. Attorney Preet Bharara claims that Countrywide Financial and Bank of America implemented a new loan origination process that “was intentionally designed to process loans at high speed and without quality checkpoints, and which generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over $1 billion dollars in losses and countless foreclosures.” According to the government’s complaint, this purported program was started by Countrywide, but continued after Bank of America purchased Countrywide in 2008. (Click here for a copy of the comlaint against Bank of America)
While this is the first civil fraud suit brought by Mr. Bharara’s Civil Fraud Unit regarding mortgage loans sold to Fannie Mae or Freddie Mac, it is the sixth lawsuit in the last year and a half—and the second this month—against major lenders under the FCA alleging reckless residential mortgage lending. As reported in the CFS-Lawblog, Mr. Bharara filed suit against Wells Fargo earlier this month under the FCA and FIRREA for multiple hundreds of millions of dollars in damages and civil penalties. (Click here for a copy of the complaint against Wells Fargo) In his statement this morning, Mr. Bharara highlighted the aggressive nature of his unit’s activities against financial institutions. “For the sixth time in less than 18 months, this Office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis.”
It is unlikely that the action against Bank of America will be the Civil Fraud Unit’s last on this topic. In 2011 the HUD’s Inspector General released an audit report claiming that half of the loans originated by 15 lenders failed to meet FHA standards for verifying borrowers’ income and other underwriting standards. Since 2008, HUD has paid more than $37 billion in claims related to defaulted mortgages. Stay tuned to the CFS-Lawblog for updates and analysis.