by: Jim Bradley Updated:
The U.S. Attorney said Bank of America knew it was selling bad mortgages to Fannie Mae and Freddie Mac in a $1 billion lawsuit. The federal government officials said a banking practice called “the hustle” amounts to mortgage fraud.
Taxpayers bailed out the mortgage companies.
The lawsuit is unlikely to prompt layoffs or leadership changes at the Bank of America, but it is a sign the mortgage problems that already cost the bank billions of dollars aren’t over.
The civil lawsuit came days after the bank’s CEO bragged about the bank’s success in accumulating cash reserves.
The U.S. Justice Department accuses Bank of America of mortgage fraud and called it “spectacularly brazen.” The department is seeking more than $1 billion in damages.
“What the government is alleging is that the bank was rushing these mortgages through without doing the due diligence,” said banking expert Tony Plath.
Plath said the new lawsuit also makes a startling claim, alleging that long after the bank bought Countrywide Mortgage in 2008, it continued a program called “the hustle,” which made bad loans and stuck taxpayers with the bill.
In Washington, D.C. on Wednesday afternoon, Kathleen Day of the Center of Responsible Lending told Eyewitness News while the lawsuit won’t impact homeowners who got bad loans, it will send a message to all banks about future lending.
“People are really angry about what happened and don’t feel like the banks have been held accountable, so this is an important step,” Day said.
For Bank of America in Charlotte, experts doubt the lawsuit will prompt any layoffs, but it is one more signal that the mortgage troubles that shackled the bank for years haven’t gone away yet.
“At the end of the day, it’s frustrating because we continue to play ‘whack-a-mole’ with these issues with mortgages,” Plath said.
Experts said the government’s lawsuit is unlikely to go to trail and Bank of America will likely negotiate a settlement.
The bank did not respond Wednesday to Eyewitness News’ request for comment.