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Bank of America, the second largest in the US, allegedly misrepresented the quality of home loans and left tax payers with huge loses.
Bank of America is being sued by the federal government for at least $1 billion in damages, for allegedly misrepresenting the toxicity of home loans it sold to mortgage finance firms Fannie Mae and Freddie Mac.
The suit is the first civil suit by the Department of Justice concerning mortgage loans sold to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, according to Reuters.
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The suit falls under the Federal False Claims Act, which has become widely used by prosecutors to hold banks accountable for their actions, and allows them to seek triple damages if they can prove taxpayers were defrauded, according to the Wall Street Journal.
The lawsuit was filed by Preet Bharara, the US attorney for the Southern District of New York, whose office just filed a suit against Wells Fargo for issuing mortgages "recklessly" and shouldering the Federal Housing Administration with the debt, the Journal reported.
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“For the sixth time in less than 18 months, this Office has been compelled to sue a major US bank for reckless mortgage practices in the lead-up to the financial crisis. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” said Bharara in a statement, according to the Corporate Crime Reporter.
According to the lawsuit, Bank of America, the second-largest in the US after JP Morgan, used a program called the "High-Speed Swim Lane," nicknamed "the Hustle." The program was put in place to streamline the mortgage process, but allegedly processed loans rapid fire without any quality checkpoints, creating "thousands of fraudulent and otherwise defective residential mortgage loans," according to the government, CNN Money reported.
"The Hussle" was started by mortgage lender Countrywide Financial, but was upheld by BofA after they purchased the lender in 2008.
Bank of America has not yet commented on the lawsuit.
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