Bank of America: U.S. fraud case is 'Alice in Wonderland'

Reuters

By Nate Raymond

NEW YORK, Oct 22 (Reuters) - The U.S. government has failedto produce any evidence to show that Bank of America Corp's Countrywide unit committed mortgage fraud in the run-upto the financial crisis, a lawyer for the bank said on Tuesday.

The remarks came at the end of a four-week trial in whichthe government said Countrywide lifted controls on mortgages ina process called "Hustle," and then intentionally sold theresulting bad loans to government-sponsored mortgage giants, theFederal National Mortgage Association (Fannie Mae) andthe Federal Home Loan Mortgage Corp. (Freddie Mac).

"We've been dragged down the rabbit hole into Alice inWonderland," Bank of America lawyer Brendan Sullivan said.

The lawsuit is the first government case to go to trial overthe faulty mortgage practices that led to the 2008 financialcrisis.

It is also the first such case to go to trial assertingclaims under a 1980s law called the Financial InstitutionsReform, Recovery and Enforcement Act, which the government hasrecently begun using to bring cases against banks.

Making a closing statement for the government, AssistantU.S. Attorney Jaimie Nawaday that Countrywide put speed andvolume ahead of quality, which was reflected in employees'bonuses and the elimination of underwriters who could assureloan quality.

"After four weeks of evidence and testimony, this is still acase about greed and lies," she said.

Rebecca Mairone, the former chief operating officer ofCountrywide's Full Spectrum Lending division and a co-defendantwith Bank of America in the case, "didn't want to hear theprocess wasn't working," Nawaday said.

Countrywide earned $165.2 million selling "Hustle" loans toFannie and Freddie, according to the government's evidence. Butof the mortgages Countrywide sold them, about 43 percent werematerially defective, Nawaday said.

"Quality had become a joke," Nawaday said.

Sullivan, a partner at the law firm Williams & Connolly,questioned the quality of the government's own evidence as helaunched into his final attack of the government's case.

The Justice Department said that Countrywide sold about28,000 such loans to Fannie and Freddie, Sullivan said. Yet thefigure had improperly included nearly 17,000 loans produced byCountrywide field offices that weren't part of the "Hustle"program, he said.

Sullivan said the evidence showed that, contrary togovernment assertions, Countrywide employees were focused onimproving the quality of the mortgages it produces and makingcorrections along the way as it launched the "Hustle" program.

"I don't think a fraud case should be an Easter Egg hunt,"Sullivan said.

A lawyer for Mairone, Michael Hefter of Bracewell &Giuliani, sought to call into question the credibility of aformer Countrywide executive who filed a whistleblower lawsuitthat became the basis of the Justice Department's case.

The former executive, Edward O'Donnell, stands to earn up to$1.6 million if the Justice Department succeeds in the case. Healso now works at Fannie Mae, Hefter said.

But Hefter said O'Donnell had "had it out" for Mairone, whotoday works at JPMorgan Chase & Co. O'Donnell blamed herfor minimizing his role in the company and for not landing ahigh-level position following a division reorganization, Heftersaid.

"Mr. O'Donnell came into this court with a grudge and amission," Hefter said.

Should the four men and six women on the jury find thedefendants liable, any penalty would be assessed by U.S.District Judge Jed Rakoff, who is presiding over the case.

The Justice Department has said it would seek a penaltyequal to either Fannie and Freddie's losses or the defendants'gain, whichever was greater.

The mortgage giants' estimated "gross loss" on the "Hustle"loans was $848.2 million, the Justice Department has said. The"net loss" - or the amount due to the portion of loans theJustice Department says were materially defective - was $131.2million.

Jurors are expected to begin deliberations Wednesdaymorning.

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

Rates

View Comments (6)