Bank of America Hit With $1 Billion Suit Over Countrywide 'Hustle'

NEW YORK ( TheStreet) -- Bank of America ( BAC) is being sued by the U.S. Department of Justice for over $1 billion for alleged multi-year mortgage fraud against government-sponsored entities Fannie Mae and Freddie Mac.

The complaint alleges that from atleast 2007 to 2009, "Countrywide and later Bank of America, following the acquisition of Countrywide in 2008, implemented a new origination process called "Hustle", which 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."

This is the first civil lawsuit filed by the Department of Justice concerning mortgage loans sold to the agencies, according to a statement.

The complaint was filed jointly by Preet Bharara, U.S. attorney general in New York, the Inspector General of the Federal Housing Finance Agency and Christy Romero of SIGTARP.

In a statement, Manhattan U.S. attorney Preet Bharara called the fraudulent conduct "brazen" in scope. "As alleged, through a program aptly named 'the Hustle,' Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill," he said. "..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 as good loans. This lawsuit should send another clear message that reckless lending practices will not be tolerated."

The complaint seeks civil penalties as well as treble damages and penalties under the false claims act, for ober $1 billion losses suffered by the agencies over the defaulted loans.

Bharara's civil frauds unit has to date brought five lawsuits against major lenders, including CitiMortgage ( C) and Wells Fargo ( WFC) alleging reckless residential mortgage lending in connection with loans insured by the FHA.

Written by Shanthi Bharatwaj in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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