BofA’s “hustling” attempt to overturn a $1.27 billion judgment against it and Countrywide—along with the individual defendant identified in the next paragraph, the “Defendants”—in the U.S. District Court for the Southern District of New York for fraud in the sale of loans to Fannie Mae and Freddie Mac has proved unavailing.
Judge Jed Rakoff of the Southern District of New York recently rejected the Defendants’ motion for a judgment in their favor or in the alternative, for a new trial. The judge characterized the Defendants’ attempt to meet their burden as one that they “utterly failed” to meet and stated that the evidence of material misrepresentations supporting the verdict was “overwhelming.” Indeed, Judge Rakoff viewed the Defendants “continuing contention that there was insufficient evidence of a material misrepresentation to support the jury’s verdict” as one that “border[ed] on the frivolous.”
This lawsuit involved numerous accusations of fraud by the U.S. Department of Justice against Countrywide, which was acquired by Bank of America in 2008, and one of Countrywide’s officers, Rebecca Mairone, a creator of Countrywide’s “High Speed Swim Lane” program, also called HSSL or “Hustle,” which was the culprit for huge quantities of poor quality loans originated by Countrywide, and the focus of the lawsuit. That program emphasized speed of loan originations over quality and rewarded staff based on volume of loans. It reportedly removed the processes responsible for safeguarding loan quality and preventing fraud by eliminating underwriter review even from many high risk loans, assigning critical underwriting tasks to loan processors who were previously considered unqualified even to answer borrower questions. The program also eliminated previously mandated checklists that provided instructions on how to perform these underwriting tasks, and did away with the review of loans prior to sale to ensure that all conditions on the loan’s approval were satisfied prior to funding. Moreover, in furtherance of the program’s goal, compensation to those involved in the loan origination process was revamped to provide performance bonuses solely based on the volume of loans. Countrywide was also accused of concealing quality control reports on Hustle loans—reports that demonstrated high rates of fraud and other material defects plaguing the loans. Countrywide reportedly concealed this program from Fannie Mae and Freddie Mac when it sold the GSEs loans that it knew were not of investment quality. Continue Reading