Bank of America Corp. urged a federal judge to throw out a $1 billion fraud lawsuit filed by the U.S. alleging it sold defective residential mortgage loans to Fannie Mae and Freddie Mac that defaulted.
The Justice Department filed the complaint last year claiming the bank and its Countrywide Financial unit generated thousands of defective loans and sold them to the two home-mortgage finance companies now under government control.
U.S. District Judge Jed Rakoff in Manhattan said after hearing arguments yesterday that he intends to issue a ruling in about two weeks.
To boost revenue in the tightening credit market in mid-2007, Countrywide sold the loans to boost revenue, according to the complaint. The program was called “HSSL,” or the “Hustle.”
Bank of America, based in Charlotte, North Carolina, argued the suit was based on a single alleged factual scenario and fails to state a claim.
“The amended complaint has no basis in law and should be dismissed,” Kannon Shanmugam, a partner at Williams & Connolly, said yesterday.
The suit, which covers conduct from 2007 to 2009, is the first by the Justice Department to allege fraud over mortgage loans sold to the two entities, U.S. Attorney Preet Bharara in Manhattan said in a statement when it was filed.
Fannie Mae and Freddie Mac losses totaled more than $1 billion, Bharara said. The Justice Department’s complaint was brought under the federal False Claims Act, which allows for triple damages.
Bank of America, which acquired Countrywide in 2008, was among 17 financial institutions sued in September 2011 by Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency, over losses on mortgage securities sold to the companies.
The case is U.S. v. Bank of America Corp., U.S. District Court, Southern District of New York (Manhattan).