US Sues Bank of America for Mortgage Fraud
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UPDATED: Jul 16, 2021
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One of the largest banks in the country, Bank of America, is being sued by the US government’s Justice Department for selling thousands of bad loans to mortgage financiers, costing taxpayers over $1 billion in losses, according to Reuters.
As you’ll remember, mortgage loan companies, Fannie Mae and Freddie Mac, were bailed out by the government in 2008 and put in the conservatorship of the Federal Housing Finance Agency. The government is now saying that Bank of America fraudulently sold toxic loans to these mortgage companies, loans which have caused billions of dollars in loses to homeowners and countless foreclosures.
In 2007 Bank of America (BofA) bought Countrywide, a once-massive mortgage lender. The bank continued to use some of Countrywide’s lending practices, including one known as the “Hustle,” which was meant to speed up the process of getting home loans into the hands of consumers. The lawsuit alleges that BofA executives instructed employees to forgo sound measures and ignore signs of defective mortgage loans. Individual employees could be facing civil fraud charges as well.
As a result of this over extension of lending, loan defect rates skyrocketed. But according to reports, Countrywide and Bank of America kept this information from Fannie Mae and Freddie Mac, who then “drew down” over $188 billion of taxpayer money, meaning they essentially spent taxpayer money they are now struggling to pay back. And the government wants Bank of America to step up help pay it back.
According to reports, plaintiffs in the lawsuit are seeking civil fines and triple damages under the federal False Claims Act (also known as the “Lincoln Act”), which holds those who defraud the government responsible and allows non-government related people to bring suit on behalf of the government and receive damages. Those individuals who invoke the Lincoln Act in this way are called “whistleblowers.”
A whistleblower is someone who notifies authorities of illegal activities or corruption happening within a company, government agency or the like. The recipient of the information can be anyone from a human resources representative, the police, the media, or any other interested party.
In order to preserve this right to call out unlawful activity without fear of retaliation, there are established laws to protect whistleblowers. One of the main laws is known as the federal False Claims Act, which ensures whistleblowers are encouraged by extending them a portion of the damages won in any associated lawsuits brought by the government, and protects whistleblowers from wrongful termination.
In the US vs. BofA lawsuit, a former Countrywide executive played the role of whistleblower. Edward O’Donnell worked for the company when the Hustle plan was in full force and he claims he is one of few to object to the practice, according to Reuters. O’Donnell brought the case that would eventually turn into the federal government’s most significant civil fraud suit against a Wall Street company so far.
For information on banking regulations in the US, see Financial Law.