Bank of America found liable for mortgage fraud

Bank of America said Thursday it is evaluating its options for appeal one day after it was found liable for fraud in a civil case the government said captured the company’s frenzied pursuit of profits at all costs just before the U.S. economy collapsed in 2008.

A Manhattan jury returned its guilty verdict on Wednesday following a month-long trial focusing on prime mortgages that Bank of America's Countrywide Financial unit completed in late 2007 and 2008. The company, which was accused of lying about the quality of mortgages it passed along to financial firms Fannie Mae and Freddie Mac, denied throughout the trial that it had participated in fraud.

The verdict was returned against Bank of America, Countrywide and a former executive, Rebecca Mairone.

U.S. Attorney Preet Bharara said the companies and Mairone were "liable for making disastrously bad loans and systematically removing quality checks in favor of (Bank of America and Countrywide's) balance."

"In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow," he said in a statement. "That profit, however, was built on fraud, as the jury unanimously found."

After the verdict was returned, Bank of America reiterated its claim that no fraud was committed.

"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," spokesman Lawrence Grayson said by email.

Rebecca Mairone's lawyer Marc Mukasey called her "a model of honesty, integrity and ethics."

"She never engaged in any fraud because there was no fraud," he said.

Nevertheless, U.S. District Judge Jed S. Rakoff said he would determine on Thursday when a penalty phase will begin.

The trial related to mortgages the government said were sold at break-neck speed without regard to quality as the economy headed into a tailspin. The government had accused the financial institutions of urging workers to churn out loans, accept fudged applications and hide ballooning defaults.

Assistant U.S. Attorney Jaimie Nawaday, in her closing argument, said the case was about "greed and lies."

"It is about people at Countrywide saying to each other that their loan quality is in the ditch, while telling Fannie Mae and Freddie Mac that their loans are investment quality," she said.

Fannie and Freddie, which packaged loans into securities and sold them to investors, were effectively nationalized in 2008 after they nearly collapsed from mortgage losses.

Government lawyers said Countrywide tried to churn out more mortgage loans through a program called the Hustle, which operated under the motto, "Loans Move Forward, Never Backward."

The government said the program eliminated checks meant to ensure mortgages were made to borrowers unlikely to default.

"The Hustle is all about speed, lightning speed and volume and never about quality," Nawaday told jurors.

Bank of America lawyer Brendan V. Sullivan Jr. contested those claims in his closing argument.

"We have been dragged down the rabbit hole into Alice in Wonderland," he said.

Sullivan defended the company's practices by noting a "vigorous quality control program" that included 20 workers in India who studied mortgage files through the night for flaws.

The Associated Press