Global Independent Analytics

Bank of America $1.27 bln U.S. mortgage penalty is voided

U.S. appeals court on Monday threw out a jury's finding that Bank of America Corp was liable for mortgage fraud leading up to the 2008 financial crisis

Nate Reymond and Jonathan Stempel for Reuters report: The 2nd U.S. Circuit Court of Appeals in New York found insufficient proof under federal fraud statutes to establish Bank of America's liability over a mortgage program called "Hustle" run by the former Countrywide Financial Corp.

The Justice Department claimed Countrywide, which was bought by Bank of America July 2008, deceived government-sponsored mortgage financiers Fannie Mae and Freddie Mac by selling them thousands of toxic loans.

But in a 3-0 decision, U.S. Circuit Judge Richard Wesley assumed the evidence was not enough, at most showing that Countrywide breached contracts to sell investment-quality loans and that there was no proof it intended any deception.

"The trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises," Wesley wrote.

The Spokespeople for Bank of America reported that the bank was content with the court’s decision, but declined an inquiry to comment.

The case was registered in 2012 after a whistleblower's complaint and remains one of the greatest enforcement cases to go to trial associated with the U.S. housing meltdown and financial crisis. The Justice Department reported that the program recompensed staff for creating more loans and constituting quality with speed, and this eventuated in Fannie Mae and Freddie Mac being lied to about the quality of mortgages they obtained. The FMs were seized in September 2008.

Bank of America was indicted under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a legislation accepted after the 1980s savings and loan scandal targeting conduct "affecting" federally insured financial institutions.

Joshua Rosenkranz, a lawyer for Mairone, called the case "a massive government overreach," and said Monday's decision possibly might have offshoots for other mortgage-related enforcement actions directed against banks.

But he added the decision was also narrow because it did not directly address a closely watched issue over whether the government could sue a bank under FIRREA for conduct "affecting" itself.

 

By Stefan Paraber for GIA.

EXPERT OPINION

Joshua Tartakovsky

It is pretty evident that giant banks are creating the next crisis just as they created the one in 2008 by selling repackaged derivatives with no genuine economic substance behind them.  Bankers think about the earning of the next quarter, not the well-being of the economy at large. That should be expected as they want to earn more but the question should be why do the US government and justice system lets them off the hook when they bring unforetold suffering to the American people and the world at large. Bernie Sanders was the only candidate to call for breaking up large banks and for that he was mocked by Bill Clinton, who misrepresented his view and claimed Bernie’s supporters wanted to shoot every third banker on Wall Street. Hillary Clinton would ensure the rule of the banksters even further to the detriment of most of us.

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