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The Surprises in the $1 Billion Bank Suit

Housing construction in Illinois
Housing construction in IllinoisPhotograph by Daniel Acker/Bloomberg

Among the many lessons of the financial crisis is that the real troubles may come once the music has already stopped, an idea that seems to be evident in the new civil suit by federal prosecutors alleging Bank of America perpetrated $1 billion in mortgage fraud. U.S. Attorney Preet Bharara said that Countrywide, and later Bank of America, had a loan-origination program called the Hustle, which allegedly tried to speed up the process of approving loans and selling them off to Fannie Mae and Freddie Mac, the quasi-governmental companies created to buy and guarantee loans from private lenders to help support the housing market. The Hustle, short for “High Speed Swim Lane,” removed some underwriting reviews even on high-risk loans, cut compliance checks, and compensated employees solely on volume, not quality, the complaint alleges. When there were early signs that many of the loans were quickly becoming duds, the bank ignored the red flags and didn’t let Fannie and Freddie in on their internal reports.

In commenting on the suit, Bank of America didn’t directly address the Hustle but did say, “The claim that we have failed to repurchase loans from Fannie Mae is simply false. At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”