Ex-Countrywide exec denies fraud at BofA trial over mortgages

Reuters

By Joseph Ax

NEW YORK, Oct 15 (Reuters) - A former executive of Bank ofAmerica's Countrywide unit told a federal jury onTuesday that she did not knowingly sell toxic mortgages toFannie Mae and Freddie Mac in the run-up to the financialcrisis.

Rebecca Mairone, a former chief operating officer ofCountrywide's Full Spectrum Lending Division, is the loneindividual 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 inManhattan, is centered on the government's allegations thatCountrywide defrauded Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies,by selling them thousands of defective mortgages. Countrywidesped up approvals to unqualified lenders in a process it calledthe "high-speed swim lane" (HSSL), or "Hustle."

Mairone, who oversaw the process, is one of only a handfulof individual defendants in lawsuits the government has filedagainst major financial institutions over improper mortgagepractices since the housing market meltdown. The Countrywidecase is the first such case to reach trial.

At the start of Mairone's testimony, her lawyer, MarcMukasey, asked a series of questions about whether she haddeliberately sold substandard mortgages to Fannie and Freddie.

"No, never," she replied.

She said she believed HSSL would actually improve loanquality and that the company had controls in place to managerisks. Mairone, 46, is now a managing director at JPMorgan Chase& Co.

During cross-examination, Assistant U.S. Attorney JaimieNawaday questioned Mairone about compensation plans for loanspecialists and others, which included bonuses for funding acertain number of mortgages each month.

The government has accused Mairone and Countrywide oftrading quality for volume by removing underwriters from thereview process and paying employees based on the number of loansthey produced.

Nawaday will continue questioning Mairone on Wednesday.

DEFENDANT CITES "LOAN QUALITY"

The case stems from a whistleblower lawsuit filed by formerCountrywide executive Edward O'Donnell.

The government estimates the mortgage finance companies hada gross loss of $848.2 million on Countrywide's "Hustle" loans.The net loss on loans that were materially defective was $131.2million, according to prosecutors.

In several hours of testimony on Tuesday, Mairone said sheand other Countrywide employees were deeply committed to makingsure 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 andmanage HSSL, as well as steps taken to remedy flaws, were notunilaterally made but were the product of discussions withseveral company leaders.

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.

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