A federal judge is considering a possible $165.8 million penalty against Bank of America Corp. after a jury found its Countrywide unit sold defective loans to Fannie Mae and Freddie Mac.
U.S. District Judge Jed Rakoff in Manhattan heard arguments today over the size of the penalty he should impose on Bank of America and former Countrywide executive Rebecca Mairone. Rakoff asked lawyers for the bank and the U.S. government to submit briefs on the amount gained from the fraud, which the government said may be $165.8 million.
Bank of America and Mairone were found liable in October after the first trial of a civil mortgage-fraud case filed by the government. U.S. lawyers asked Rakoff to order the bank to pay as much as $863.6 million, which they said is the amount Fannie Mae and Freddie Mac lost on the loans. The Charlotte, North Carolina-based bank claims it should have to pay $1.1 million at most.
The government claims Countrywide committed a “simple but brazen” fraud by misrepresenting risky loans processed through its High Speed Swim Lane or “HSSL” program as being of investment quality.
The case was brought under the Financial Institution Reform, Recovery and Enforcement Act of 1989, or FIRREA. That statute and another law has been used by Manhattan U.S. Attorney Preet Bharara’s office at least six times to obtain almost $500 million in mortgage fraud recoveries.
Under the statute, the penalty can’t exceed the amount of gain or loss from a violation.
Rakoff said he will issue a ruling on the penalty in February.
The case is U.S. v. Countrywide Financial Corp., 12-cv-01422, U.S. District Court, Southern District of New York (Manhattan).