UPDATE 2-U.S. government mortgage fraud lawsuit against BofA headed to trial

Tue Aug 27, 2013 3:29pm EDT

* Judge refuses to dismiss suit, finds "factual disputes"

* Bank says believes there was no fraud

* Jury trial scheduled to begin Sept. 23

By Jonathan Stempel

NEW YORK, Aug 27 (Reuters) - A U.S. government lawsuit accusing Bank of America Corp of fraud in the sale of billions of dollars of toxic mortgage loans to Fannie Mae and Freddie Mac is on track to go to trial next month after a judge rejected the bank's bid to dismiss the case.

In an order made public on Tuesday, U.S. District Judge Jed Rakoff in Manhattan said there were "genuine factual disputes" that justify letting the case continue against the second-largest U.S. bank.

The order clears the way for the case to proceed toward a scheduled Sept. 23 jury trial. Only a few prominent cases tied to the financial crisis have ever gone to trial.

Rakoff also said he expects to decide before trial which theories he will allow the government to pursue. He said he would explain his reasons for Tuesday's order "in due course."

The U.S. Department of Justice sued Bank of America last October, joining a whistleblower lawsuit originally brought by former Countrywide Financial Corp executive Edward O'Donnell.

It alleged that Countrywide, acquired by Bank of America in July 2008, caused more than $1 billion of taxpayer losses by selling defective home loans to Fannie Mae and Freddie Mac, the mortgage financiers seized by the government in September 2008.

The government said the loans went through a program called the "High Speed Swim Lane" - also known as "HSSL" and "Hustle" - that Countrywide devised in 2007 to speed up loan processing, even if it meant ignoring safeguards to help ensure that loans were sound and not tainted by fraud.

Bank of America, in court papers, countered that HSSL was a "legitimate and good-faith effort" to develop systems for making prime loans after the collapse of the subprime market.

A Bank of America spokesman, Lawrence Grayson, said after Rakoff issued his order, "This program ended before our purchase of Countrywide, as the government acknowledges. We believe there was no fraud."

At an Aug. 13 hearing, Rakoff signaled that the government could take its case against Bank of America and former Countrywide executive Rebecca Mairone to a jury.

"The government's theory in part has always been that the defendants, through their own internal processes, covered up how defective the loans were and made them appear - even for the purposes of their ultimate internal figures, let alone what they represented to others - less defective than they were," Rakoff said. "That may be right, that may be wrong."


While Bank of America Chief Executive Brian Moynihan has made major strides in resolving litigation tied to the financial crisis, with the bank having already agreed to pay more than $45 billion, the lawsuit makes clear his work is far from done.

Indeed, the Charlotte, North Carolina-based lender was hit just three weeks ago with lawsuits by the Justice Department and the Securities and Exchange Commission alleging fraud in an $850 million mortgage debt sale in early 2008.

In the case before Rakoff, Bank of America was sued under the federal False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a 1989 federal law passed in the wake of that decade's savings-and-loan crisis.

FIRREA has a lower burden of proof and longer statute of limitations than other laws often used in financial fraud cases.

Earlier this month, Rakoff endorsed a broad interpretation of FIRREA. He has also taken a tough line in SEC cases against banks, initially rejecting a Bank of America settlement over Merrill, and rejecting a separate accord with Citigroup Inc because that bank did not admit wrongdoing.

"Admitting it did something wrong could have preclusive effects in subsequent private civil litigation or parallel litigation involving the government, so the bank needs to tread carefully," David Freeman Engstrom, an associate professor at Stanford Law School, said in an interview about Bank of America. "Rolling the dice and going to trial may be more attractive."

The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

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Comments (2)
I’m working on two cases involving Bankrupting of America and both of them involve securities fraud, wire fraud, mail fraud and both cases contain forgeries and notary fraud due to the fact that the now confirmed fictitious “Linda Green, Jessica Leete, and Rachael Murrah” signed 100s of thousands of documents using false notarizations on essential loan papers such as the Deed of Trust, Assignment of Deed of Trust, Substitution of Trustee and Deed of Reconveyance.
BoA’s claim of no fraud is utter BS. The Dept.of Justice, US Attnys office and the FBI need to ratchet up the prosecutions based upon their investigations. I’m just one investigator & found two instances, how many more are out there? They don’t need to turn over a single stone, just look around folks they’re everywhere.
Robo-signing is a term banks use to minimize the crime of forgery. Forgery is a crime and those people who took part in, or facilitated in promoting the subsequent fraud should be punished with jail time.

Aug 27, 2013 11:15pm EDT  --  Report as abuse
Chessldy wrote:
I would be happy to show you the fraud they have perpetrated against me.

Aug 28, 2013 2:35pm EDT  --  Report as abuse
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