On October 23, 2013, Bank of America was
found liable for civil fraud in a federal lawsuit filed in New York. The U.S. Department of Justice
brought the suit against B of A based on bad home loans sold to Freddie
and Fannie. The loans, which were isssued by Countrywide, did not meet
underwriting standards and were not as hihg-quality as the bank had claimed
when it sold the loans to Freddie and Fannie. Former Countrywide executive
Rebecca Marione was also found liable for fraud as an individual.
It is good to see the DOJ finally holding B of A, Chase, and others accountable
for the behavior that directly contributed to the collapse of the economy.
DOJ will seek up to $848.2 million in damages, which it claims is Freddie
and Fannie's gross loss on the loans. Bank of America has already
spent $40 billion settling disputes stemming from its involvement in the
This case is unique in that it was brought pursuant to the Financial Institutions
Reform, Recovery, and Enforcement Act (FIRREA). FIRREA was enacted after
the S&L scandal in the 1980s and involves fraud affecting federally-insured
financial institutions. In this case, the DOJ was able to sue B of A even
though B of A was the entity harmed by the fraud. This case is an example
of the expansive reach of FIRREA. Although DOJ has not used FIRREA extensively
thus far, this may mark a change in course.
At the end of the day, this may be cold comfort to those who lost their
homes, but recovering the money that Freddie and Fannie lost will return
a large chunk of money lent to the GSEs by taxpayers.