* U.S. says bank caused taxpayers $1 billion in losses
* Bank acted to resolve mortgage problems -BofA spokesman
* BofA sold toxic mortgage loans to Fannie, Freddie -U.S.
By Grant McCool
NEW YORK, Oct 25 Bank of America Corp
employees could face civil fraud charges as part of a federal
lawsuit accusing the bank of causing taxpayers more than $1
billion in losses by selling toxic mortgage loans to Fannie Mae
and Freddie Mac, a prosecutor said on
The comments were made at a hearing in Manhattan federal
court to set a timetable for the U.S. Department of Justice's
first civil fraud lawsuit over mortgage loans sold to the two
big mortgage financiers, which the government had announced on
Wednesday. Fannie Mae and Freddie Mac were bailed out and put in
government conservatorship in 2008.
"Potentially, the government may amend its complaint to
include individuals, present or former employees of Bank of
America," Assistant U.S. Attorney Pierre Armand told U.S.
District Judge Jed Rakoff.
The judge asked the prosecutors to amend their complaint by
year end. The case involves mortgage lender Countrywide
Financial Corp, which Bank of America bought in July 2008.
Most lawsuits by federal and state investigators against
major banks over matters related to the recent financial crisis
name few or no individuals as defendants.
An exception is the 18 lawsuits filed last year by the
Federal Housing Finance Agency, the conservator for Fannie Mae
and Freddie Mac, which named more than 130 individual
According to Wednesday's complaint, Countrywide in 2007
invented, and Bank of America continued, a scheme known as the
"Hustle" to speed up processing of residential home loans.
Operating under the motto "Loans Move Forward, Never
Backward," mortgage executives tried to eliminate "toll gates"
designed to ensure that loans were sound and not tainted by
fraud, the government said.
This led to defect rates that approached 40 percent, roughly
nine times the industry norm, but Countrywide concealed this
from Fannie Mae and Freddie Mac, and even awarded bonuses to
staff to "rebut" the problems being found, it added.
In court on Thursday, Brendan Sullivan, a lawyer for Bank of
America, said "fascinating issues arise here" and the complaint
was "not like anything we have seen before."
The lawsuit seeks civil fines and triple damages under the
federal False Claims Act, which the government has used several
times in recent years against Wall Street.
Lawrence Grayson, a bank spokesman, on Wednesday said the
bank has "acted responsibly" to resolve older mortgage matters,
but that at some point could not be expected to compensate every
entity claiming losses caused by the economic downturn.
In February, Bank of America agreed to a $1 billion
settlement of False Claims Act allegations over home loans
submitted for insurance provided by the Federal Housing
Administration, in a case from the U.S. Attorney's office in
Brooklyn, New York.
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.