The fallout from the financial and real estate crises of recent years is far from over. One example is the huge mortgage fraud lawsuit brought by the federal government against one of the nation's biggest banks, Bank of America.
The lawsuit was filed this week by Preet Bharrara, the U.S. Attorney for the Southern District of New York. It has important implications for thousands of people in St. Louis and across the country who have been involved with the mortgage industry in recent years.
The lawsuit concerns mortgage loans sold by Bank of America and Countrywide Financial (acquired by BofA in 2008) to the Fannie Mae and Freddie Mac. Fannie and Freddie are the quasi-public companies whose loans undergird much of the U.S. housing market.
The suit contends that BofA and Countywide deliberately sold home loans knowing they were toxic and would almost surely default. Federal prosecutors claim that when these loans did default, the losses were over $1 billion. The ensuing foreclosures did not only harm homeowners; they also exerted an inexorable downward pull on the real estate market.
In particular, prosecutors contend that Countywide engaged in a fraudulent loan origination scheme that came to be called "The Hustle." It involved a rushed process to force through loans without proper underwriting practices. The government charges that the scheme began in 2007 and continued until 2009, even after BofA bought Countywide.
Obviously much has changed in American life since the housing burst. As the BofA case and others play out, it is important to remember that, for a time, seemingly the entire real estate industry was engaged in what now seem like questionable practices. Prosecutors should keep that in mind when considering whether to bring criminal mortgage fraud cases relating to a crisis whose scope went so far beyond any of the individual players.
Source: "BofA hit with $1 billion lawsuit over alleged mortgage fraud," St. Louis Business Journal, Greta Weiderman, 10-24-12
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