By Nate Raymond
NEW YORK (Reuters) - The U.S. government has raised the amount it is seeking in penalties from Bank of America Corp (BAC) to $2.1 billion after a jury found the bank was liable for fraud over defective mortgages sold by its Countrywide unit.
The request in a court filing late on Wednesday was based on gross revenue generated by the fraud, the government said. The Justice Department had previously asked for $863.6 million.
The initial request was based on gross losses it said government-sponsored mortgage finance companies Fannie Mae (FNMA) and Freddie Mac (FMCC) incurred on loans purchased from Countrywide Financial Corp in 2007 and 2008.
In a December hearing, a judge asked the bank and the Justice Department to brief him on how he might base the penalties on Countrywide's gains rather than losses resulting from the mortgage sales.
A federal jury in New York in October had found Bank of America and Rebecca Mairone, a former mid-level executive at Countrywide, each liable for fraud in the civil lawsuit.
The case focused on a mortgage lending process at Countrywide, which Bank of America acquired in July 2008, called the "High Speed Swim Lane," or alternatively "HSSL" or "Hustle."
The government contended that Countrywide's program emphasized and rewarded employees for the quantity rather than the quality of loans produced, and eliminated check lists designed to ensure that loans were sound.
Bank of America and Mairone denied wrongdoing. Bank of America has said it was evaluating options for an appeal.
"This claim bears no relation to the limited Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Lawrence Grayson, spokesman for the bank, said on Thursday.
Any penalty would be assessed by U.S. District Judge Jed Rakoff. At the December hearing, he asked for a "more full presentation" on how to calculate the penalty on Countrywide's gains, calling it a simpler approach.
Evidence the government presented at trial indicated Countrywide earned $165.2 million selling the loans.
But in its filing Wednesday, lawyers working in the office of Manhattan U.S. Attorney Preet Bharara said the penalty should be based on Countrywide's gross gain, rather than net gain.
The government urged the judge to set the maximum penalty to "punish defendants for their culpability and bad faith, and to deter financial institutions and their executives who would engage in similar fraudulent mortgage schemes".
The potential penalties, if approved by Rakoff, would add to the more than $45 billion Bank of America has already agreed to pay to settle disputes stemming from the 2008 financial crisis.
Bank of America's litigation expenses jumped in the fourth quarter of 2013 to $2.3 billion from $916 million a year earlier.
In its brief, the government said it continued to also seek a $1.1 million penalty from Mairone based on her ability to pay.
Marc Mukasey, a lawyer for Mairone, in an email on Thursday said the government had made his client a "scapegoat" when her supervisors and risk managers all approved the mortgage origination process at issue.
Bank of America is scheduled to respond to the government's motion on February 26. Oral argument before Rakoff is scheduled for March 13.
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. 12-01422.
(Reporting by Nate Raymond in New York; Editing by Lisa Von Ahn and Sophie Hares)