NEW YORK - A New York jury has found Bank of America Corp. liable for mortgage fraud.
The verdict was returned Wednesday after a month-long civil trial in Manhattan. The trial related to mortgages the government said were sold at breakneck speed without regard to quality as the economy headed into a tailspin in late 2007 and 2008.
The unprecedented trial went on for a month. The government accused Countrywide, now owned by Charlotte-based Bank of America, of mortgage fraud. The government said the company threw out quality checks, churned out loans and then sold bad mortgages to Frannie Mae.
"This is a first and an important first because it will likely open the door to other civil suits for fraud," said Tony Plath, University of North Carolina at Charlotte professor and banking expert.
Plath told Channel 9 this trial is important because it's the first civil-fraud case the government has won against a bank since the mortgage crisis. He says it will likely pave the way for other suits, not just involving Bank of America but other banks involved in the crisis.
"What this indicates is we haven't seen the end of the suits, the penalties, the fines," said Plath
For Bank of America, the cost still isn't known. Reuters is reporting that the government wants almost $850 million in penalties, but that's up to a judge. Plath said that's not much compared to the billions Bank of America has already spent on disputes stemming from the crisis. He says the damage for Charlotte is that the crisis backlash drags on.
"As long as we continue to have difficulty in the mortgage market and not get to the bottom of the problems, it's hard to move forward for the bank, for its employees, for its customers and most importantly its shareholders," said Plath.
Bank of America's attorneys have said there was no fraud and that there was a quality control program in place.
A spokesperson from Bank of America released a statement to Reuters saying, "The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company."
The statement also said the company is looking at a possible appeal.
The jury found Bank of America liable for actions carried out by its Countrywide Financial unit. Bank of America acquired Countrywide in July 2008.
The government had accused the financial institutions of urging workers to churn out loans, accepting fudged applications and hiding ballooning defaults.
Bank of America had denied there was any fraud.
A judge says it will be decided Thursday when a penalty phase of the trial will begin.