In more long-awaited fallout from the mortgage crisis, Federal prosecutors today sued the Bank of America and Countrywide Financial for a scheme to defraud the government via a program called “The Hustle.”
Yes, they called it “The Hustle.” Its purpose: allegedly to process home loans at high speed with quality control. Its effect: the creation of thousands of fraudulent or bad home loans, which led to more than $1 billion in losses and countless foreclosures, according to a statement from the U.S. Attorney’s office.
The scheme originated with Countrywide, an already notorious player in the loan scandals, and continued after Bank of America — the largest bank in the United States — acquired the company in 2008
The U.S. Attorney for the Southern District, Preet Bharara, said this: “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. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope.”
And this: “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. These toxic products were then sold to the government-sponsored enterprises [Fannie Mae and Freddie Mac] as good loans.”
The scheme continued even after the Obama administration handed $45 billion to Bank of America as part of the TARP program, which was established to bail out banks as a result of the mortgage mess.
Internal documents show that Countrywide’s goals for the “hustle” were high speed and high volume, where loans would “move forward, never backward.” Countrywide did away with underwriters, and relied on junior clerks instead who got bonuses based on quantity, not quality. Compliance officers, who were supposed to double check the loan terms, also got the boot.
The firm was warned over and over again that these steps would be disastrous, and they were. In January, 2008, an internal review showed that more than half the loans were defective. Instead, the company made it so fewer people saw those reviews. A database containing information on the loans contained widespread falsifications. Finally, the company not only failed to tell Fannie Mae and Freddie, but took steps to hide their misconduct. After the Bank of America bought Countrywide, the scam continued.
One of the bad loans involved a California house sold to a person who claimed to earn $8,500 a month in his own company, when no such company existed. In another, the borrower claimed to work for Florida West Airlines earning $15,000 a month. In fact, he was a temp worker, earning less than $3,000 a month. A Georgia buyer claimed an income of $12,000 a month, but was actually close to bankruptcy.
This year, the feds have settled similar cases against three other banks — CitiMortgage, Flagstar Bank, DeutscheBank — for a total of $493 million. Two other such lawsuits are pending against Allied Home Mortgage and Wells Fargo.