A federal grand jury found the former Countrywide
Financial and one of its executives guilty of mortgage fraud on Wednesday in a
whistle-blower generated civil suit. The
company, acquired by Bank of America in 2008, was found liable for actions that
resulted in the purchase of thousands of defective loans by government
sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Former Countrywide executive Rebecca Mairone
was also found liable in the case.
Mairone had been chief operating officer
of Countrywide's Full Spectrum Lending Division which was responsible for
operating a program, implemented in 2007, called High-Speed Swim Lane, and
nicknamed "the Hustle." The program was
designed to speed mortgage processing but federal prosecutors said it lacked
quality checkpoints and processes such as income verification. The loans were then sold to or guaranteed by
the GSE's under representations that they met the companies underwriting
guidelines. Mairone was the only Countrywide official named in the suit.
The government maintained that the 28,800
loans underwritten through the Hustle program were processed in as few as 10
days rather than up to 60 as in most programs.
The loans that ultimately defaulted cost the GSEs $131 million and they
allege that Countrywide earned at least $165 million under the program.
A whistleblower brought the original
suit against Mairone and her former employer; it was then joined by the
Department of Justice. Edward O'Donnell,
also a former executive at the company, said he had complained repeatedly about
loan quality standards used in the program.
He could be awarded as much $1.6 million for his role in the legal
Countrywide's defense attorney Brendon
Sullivan told jurors that only about 11,000 loans were processed through the
program which only lasted a few months and that there was no fraud involved.
Judge Jed Rakoff told attorneys he would determine the civil penalties in
the case. The Justice Department has
requested payment of either that gross losses suffered by the GSEs, $848
million, or alternatively the estimated net loss of $131 million.
Attorneys for both Mairone and Bank of
America which is responsible for Countrywide's liabilities indicated they may
appeal the decision.