NEW YORK - The top federal prosecutor in Manhattan sued Bank of America for more than $1 billion on Wednesday for mortgage fraud against Fannie Mae and Freddie Mac during the years around the financial crisis.
U.S. Attorney Preet Bharara said Countrywide Financial, which was later bought by Bank of America, churned out mortgage loans from 2007 to 2009 without making sure that borrowers could afford them.
"The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope," Bharara said in a statement. He said the suit was partly to recover money that Fannie and Freddie lost from defaulted loans.
Bank of America had no immediate comment.
Countrywide sold the loans to Fannie Mae and Freddie Mac, which were left to pay for the loans when they defaulted, according to the lawsuit. Fannie and Freddie were effectively nationalized in 2008.
According to the lawsuit, Countrywide used a process called "the Hustle," shorthand for "High-Speed Swim Lane." The idea was that mortgage loans, as they were being processed, would "move forward, never backward."
The lawsuit alleged that Countrywide traded quantity for quality and eliminated underwriters, even from mortgage loans for which borrowers did not have to get their income verified.
Instead, loan processors simply entered data into an automated underwriting system, and if the system gave the go-ahead, "no underwriter would ever see the loan," the lawsuit alleged.