By Joseph Ax
NEW YORK Oct 15 A former executive of Bank of
America's Countrywide unit told a federal jury on
Tuesday that she did not knowingly sell toxic mortgages to
Fannie Mae and Freddie Mac in the run-up to the financial
Rebecca Mairone, a former chief operating officer of
Countrywide's Full Spectrum Lending Division, is the lone
individual defendant in the lawsuit brought by the U.S.
government against the bank, which acquired Countrywide in 2008.
The trial, now in its fourth week in U.S. District Court in
Manhattan, is centered on the government's allegations that
Countrywide defrauded Fannie Mae and Freddie Mac
, the government-sponsored mortgage finance companies,
by selling them thousands of defective mortgages. Countrywide
sped up approvals to unqualified lenders in a process it called
the "high-speed swim lane" (HSSL), or "Hustle."
Mairone, who oversaw the process, is one of only a handful
of individual defendants in lawsuits the government has filed
against major financial institutions over improper mortgage
practices since the housing market meltdown. The Countrywide
case is the first such case to reach trial.
At the start of Mairone's testimony, her lawyer, Marc
Mukasey, asked a series of questions about whether she had
deliberately sold substandard mortgages to Fannie and Freddie.
"No, never," she replied.
She said she believed HSSL would actually improve loan
quality and that the company had controls in place to manage
risks. Mairone, 46, is now a managing director at JPMorgan Chase
During cross-examination, Assistant U.S. Attorney Jaimie
Nawaday questioned Mairone about compensation plans for loan
specialists and others, which included bonuses for funding a
certain number of mortgages each month.
The government has accused Mairone and Countrywide of
trading quality for volume by removing underwriters from the
review process and paying employees based on the number of loans
Nawaday will continue questioning Mairone on Wednesday.
DEFENDANT CITES "LOAN QUALITY"
The case stems from a whistleblower lawsuit filed by former
Countrywide executive Edward O'Donnell.
The government estimates the mortgage finance companies had
a gross loss of $848.2 million on Countrywide's "Hustle" loans.
The net loss on loans that were materially defective was $131.2
million, according to prosecutors.
In several hours of testimony on Tuesday, Mairone said she
and other Countrywide employees were deeply committed to making
sure the loans they sold were low risk.
"Loan quality was the foundation of what we did every day,"
she said. "That was the culture."
She also emphasized that decisions about how to design and
manage HSSL, as well as steps taken to remedy flaws, were not
unilaterally made but were the product of discussions with
several company leaders.
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.