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US sues Bank of America for $1 billion in mortgage fraud case

US Attorney Preet Bharara [official profile] on Wednesday filed a $1 billion civil lawsuit [complaint, PDF] against Bank of America (BOA) [corporate website; JURIST news archive] claiming the bank committed fraud in residential mortgages. The claim was filed in the US District Court for the Southern District of New York (SDNY) [official website] and alleges [press release] that Countrywide Financial, a home mortgage originator subsequently purchased by BOA, initiated a program to originate residential mortgages with increased speed that required little substantive information from the borrowers and were thus faulty. After minimal quality checking, these loans were then sold to the government-sponsored entities Freddie Mac and Fannie Mae [corporate websites], which suffered financial losses when the borrowers defaulted on their loans. They allege that this program was called "Hustle" and was continued after the acquisition by BOA.

BOA has faced significant legal pressure recently. In September BOA settled [JURIST report] a $2.43 billion class action lawsuit with investors over their $18.5 billion acquisition of Merrill Lynch. In July BOA agreed to pay $375 million [JURIST report] in a settlement with bond insurer Syncora Guarantee [corporate website] over claims that Syncora was misled into insuring toxic mortgage-backed securities of BOA-owned Countrywide Financial Corporation [NYT backgrounder]. Also that month a federal judge rejected [JURIST report] a motion by BOA to dismiss a shareholder lawsuit alleging BOA's purposeful concealment of the bank's exposure to billions of dollars in loan repurchase claims and its problematic reliance on an electronic loan registry. In December BOA reached a $315 million settlement of claims brought by investors alleging they were misled with respect to mortgage-backed investments, and a $335 million settlement [JURIST reports] with the Department of Justice, relating to discriminatory lending practices.

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