October 24, 2012 (TSR) – Bank of America is not taking lightly today’s $1 billion lawsuit filed by the U.S. government.
The nation’s second largest bank is defending itself against the massive mortgage fraud allegations launched today by U.S. Attorney Preet Bharara.
In a statement the bank calls claims that it failed to negotiate with Fannie Mae “simply false” and says in fact it has “acted responsibly to resolve legacy mortgage matters.”
Earlier today Bharara filed a lawsuit against the bank saying its Countrywide unit created a program dubbed the “Hustle” to push through defective home loans then sold them to Fannie Mae and Freddie Mac.
According to the suit, the goal of Hustle, or HSSL which stands for High-Speed Swim Lane, was high-speed and high-volume where home loans “move forward, never backward” during origination process.
Those loans were then sold to Fannie and Freddie even though they did not meet the standards required by the purchase agreements, the suit says, resulting in $1 billion in losses and countless foreclosures.
But BofA says it’s been acting in good faith to work with Fannie and Freddie to resolve those claims. How? The bank and Fannie and Freddie have been working out just exactly how much of the soured mortgages should be repurchased by BofA.
There’s been some tension between the two sides over which legacy mortgages should be bought back but in the most recent quarter BofA appeared to be getting its arms around its expected repurchase losses.
Here’s the full statement from BofA:
Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters. The claim that we have failed to repurchase loans from Fannie Mae is simply false. At some point, Bank of America can’t be expected to compensate every entity that claims losses that were actually caused by the economic downturn.
BofA isn’t alone in its battle with repurchase claims. Wells Fargo, Citi,and JPMorgan Chase face similar issues but not nearly as costly as BofA’s repurchase claims. BofA is dealing with the bulk of repurchase requests from the GSEs mostly because of how big its mortgage business became after purchasing Countrywide–a mortgage origination company riddled with bad loans.
BofA has already paid some $40 billion in litigation and repurchase demands since buying Countrywide in 2008.