Why the lawsuit against BoA/Countrywide could be a blockbuster

The name on the lawsuit is “Bank of America,” but the key word to those in the Beltway is “Countrywide,” one of the most reckless — and politically connected and active — companies involved in the subprime meltdown.

First, the key parts of the AP story about the lawsuit, in which the government is seeking more than $1 billion in damages:

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.

With few checks and balances, there was “widespread falsification” of the data entered into the program, Bharara charged.

But this is not your run-of-the-mill Wall Street greed story. Not when Countrywide is involved.

In their book “Reckless Endangerment,” New York Times columnist Gretchen Morgenson and housing-finance expert Joshua Rosner offer a damning portrayal of Countrywide’s efforts to win friends and influence people on Capitol Hill. The company was joined at the hip with Fannie Mae and Freddie Mac — here’s another account of that — and regularly rewarded members of Congress, members of their staffs and families, and administration officials with cut-rate mortgages. Perhaps you’ve heard of the “Friends of Angelo” program, as in Angelo Mozilo, Countrywide’s former CEO.

The reward for all this generosity, Morgenson and Rosner report, was a little more benefit of the doubt from Washington when Countrywide’s reckless practices began to attract scrutiny.

One big question for the lawsuit will be whether Bank of America, which acquired the liability for these excesses when it bought Countrywide in 2008, has the goods (and the nerve) to name names during these legal proceedings. Might BoA be in possession of records that more closely tie the receiving of benefits by members of Congress or the bureaucracy to interventions by them on the company’s behalf? Might it be able to shed even more light on how Fan and Fred worked hand in glove with rogue companies like Countrywide to turbocharge the mortgage mania?

Maybe BoA has the goods, maybe it doesn’t. Maybe it will use what it does have to procure a favorable settlement, or maybe this lawsuit will give us a clearer picture of the symbiotic partnership between Big Finance and Big Government that nearly brought the country to its knees.

– By Kyle Wingfield

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66 comments Add your comment

Centrist

October 24th, 2012
4:25 pm

“One big question for the lawsuit will be whether Bank of America, which acquired the liability for these excesses when it bought Countrywide in 2008, has the goods (and the nerve) to name names during these legal proceedings. Might BoA be in possession of records that more closely tie the receiving of benefits by members of Congress or the bureaucracy to interventions by them on the company’s behalf?”

Easy answers to those questions: Absolutely, and positively NO.

Mr. Holmes

October 24th, 2012
4:27 pm

Thank you, Kyle, for a refreshingly nonpartisan take on this development. I’ll be interested to see how many heads roll on both sides of the congressional aisle, as well as in Charlotte.

Mr. Holmes

October 24th, 2012
4:34 pm

Btw, and I realize the AJC is not exactly swimming in cash these days, but really … the website. Half of the story pages generated in the new CMS appear to be in the old design (how does that even happen in a CMS?), and as a result much of the page navigation is broken. So you have to click back or go to the homepage and start again. It’s been months since the new design was launched–what gives?

JF McNamara

October 24th, 2012
4:36 pm

I would have expected this article from Bookman. I thought what Countrywide did was just part of capitalism.

xxx

October 24th, 2012
4:40 pm

JF McNamara

Either you don’t understand capialism or are being purposely obstreperous.

getalife

October 24th, 2012
4:43 pm

Good news.

“Paul Ryan: To Help The Poor, Cut Programs For The Poor”

More proof the gop wants the middle class and poor to pay for their collapse.

This is the kind of crap that starts riots.

Kyle Wingfield

October 24th, 2012
4:46 pm

Mr. Holmes @ 4:34: My understanding is that they were running into too many problems trying to convert the blogs to the new CMS and didn’t want to delay its rollout on the rest of the site because it’s closely integrated with our new print publishing software. But I’m with you in really wanting to see it extended to the blogs. It will make my job easier in a couple of respects.

MAC

October 24th, 2012
4:48 pm

And why did Angelo Mozilo get his case dismissed with no charges and only a fine, which was miniscule to what he earned in this debacle?

One perspective....

October 24th, 2012
4:49 pm

This, of course, would be the same Countrywide that gave Barney Frank and Chris Dodd (you know, of Frank Dodd financial reform) sweet deals on mortgages. And who was preventing changes in mortgage financing even as the GWB administration warned that Fannie and Freddie werre getting out of hand? Why, that would be Barney Frank and Chris Dodd!

Anyone who can’t see Democrat fingerprints all over the Great Recession is simply not looking hard enough. Anyone who believes that Dodd-Frank is anything more than a drag on the economy is giving it way to much credit.

MANGLER

October 24th, 2012
4:54 pm

So a company uses money to influence politicians, and you’re complaining about that? I guess because the affected were primarily lower income people you want to suddenly take a stand against corporate influence in Washington. Will you next shout out against the oil industry, or tobacco, or farmers, or insurers, or health care providers, or power companies, or Super PACS? Or are you only happy when efforts to help non corporate ideologies are involved?

This lawsuit isn’t about lobbying, it’s about Countrywide lying to it’s investors and falsifying data that it was selling to Fannie and Freddie and to BOA.

getalife

October 24th, 2012
4:55 pm

There were no heads rolling on insider trading and there will be no heads rolling on this collapse.

Perhaps you should start holding the gop accountable and then some heads would roll.

Until then, it is wishful thinking. Making the poor and middle class pay for their mess is sick.

Start with stopping the poor and middle class from paying for their disaster.

You probably are middle class. Vote for yourself not your failed party.

RW-(the original)

October 24th, 2012
4:57 pm

Good thing Obama got that 15 million dollar loan first and filed the suit later.

Nygeria

October 24th, 2012
5:00 pm

BofA is starting to resemble a giant pinata, as soon as they earn a few bucks some wannabe aggrieved victim sues to beat a few $ billion more out of them.

Too bad the banks can’t countersue the government for forcing them to grant subprime mortgages under the Community Reinvestment Act.

Interested Observer

October 24th, 2012
5:10 pm

Re: “partnership between Big Finance and Big Government that nearly brought the country to its knees”

What was it that Rick Santelli screamed into the television camera that got anti-Obama people so fired up that they decided to start a Tea Party movement to disguise the fact that they were Republicans?

Here’s the quote–

“Why don’t you put up a website to have people vote on the internet as a referendum to see if we really want to subsidize the LOSER mortgages?…How many of you people want to pay for your neighbors’ mortgage that has an extra bathroom and can’t pay their bills?…You can go down to minus two percent, they can’t afford the house!…We’re thinking of having a Chicago Tea Party in July.”

[...] Prosecutors Sue Bank of America Over Mortgage ProgramNew York TimesAFP -The Guardian -Atlanta Journal Constitution (blog)all 680 news [...]

[...] Sue Bank of America Over Mortgage ProgramNew York Times (blog)The Guardian -NBCNews.com -Atlanta Journal Constitution (blog)all 619 news [...]

Interested Observer

October 24th, 2012
5:18 pm

Somebody should also point out that Fannie Mae and Freddie Mac were not “Big Government.” At the time that Countrywide was doing business with them, both organizations were corporations with stock that was bought and sold on the New York Stock Exchange. The government took them over after-the-fact.

Just Saying..

October 24th, 2012
5:19 pm

A punitive legal assault on Washington influence buying is great news, no matter the ratio of Rs to Ds involved.

Rafe Hollister, suffering through Oblamer's ineptocracy

October 24th, 2012
5:25 pm

Prediction, like most corruption, the incriminating stuff was sent through the shredder before Country Wide turned over anything to BOA. If any big Dems were involved, Mr Executive Privilege, Eric Witholder would not have agreed to allow the suit to be filed.

TOTUS

October 24th, 2012
5:30 pm

Give me a minute and I will think of some smart arse comment for Master Obama to spew out.

[...] PostUS sues Bank of America for $1 bn over bad mortgagesAFPNew York Times -The Guardian -Atlanta Journal Constitution (blog)all 680 news articles » Category: Uncategorized [...]

Dum-Bass

October 24th, 2012
5:49 pm

BOA is a snake, how appropriate. I notice they use BofA usually. I can see why. They know!

carlosgvv

October 24th, 2012
5:57 pm

Are you really saying there is a symbiotic relationship between Big Business and Big Goverment? Say it ain’t so, Kyle!!!!!!!!!!

Georgia

October 24th, 2012
6:16 pm

Who brought the country to it’s knees? I knew it wasn’t wallstreet, wallstreet is a punk. I suspected the symbiotic thing, but I never knew until now that it was BOC all along. Give this to Luca Brasi.

mike

October 24th, 2012
6:22 pm

Kyle: I think you should post a more recent photo instead of your high school graduation picture. HAHAHAHA!

Finn Mccool

October 24th, 2012
6:42 pm

wow, excellent write-up, Kyle. the inner Matt Taibbi in you is coming out. Gotta love that.

Let’s lock these muthers up!

Finn Mccool

October 24th, 2012
6:43 pm

Kyle really wanted to use the term “vampire squid” but it’s taken.

Finn Mccool

October 24th, 2012
6:45 pm

Just the fact that some people on the right are seeing, for the first time, the corruption and top-down fraud is a true turning point for the United States!

Go, Kyle, Go!

UPGRAYEDD

October 24th, 2012
7:02 pm

I wonder what Mr. Romney’s opinion would be on this. I would imagine that he found the entire Countrywide fiasco appalling, rather than embracing it on the merits of capitalism. I’m no Rmoney fan, but it’s time someone strikes a balance between reasonable mortgage requirements and supporting the real estate community’s growth.

md

October 24th, 2012
7:04 pm

“First, the key parts of the AP story about the lawsuit, in which the government is seeking more than $1 billion in damages:”

Wonder if our benevolent gov’t has any clue that they are suing the customers of BOA……any idea what they plan to do with the proceeds?

JamVet

October 24th, 2012
7:58 pm

Mozilo, arguably the worst CEO in history and Dick Cheney, arguably the worst VP in history (Don’t blame Bush, nobody saw it coming”) should both be in prison being somebody’s _____.

Gretchen Morgenson – who predicted what was coming years and years ago – has more wisdom and moral courage in her little finger than the entire GOP leadership put together.

Long Live the American Plutocracy.

ragnar danneskjold

October 24th, 2012
7:59 pm

I have enjoyed an opportunity, for the past few months, to review a lot of Countrywide securities offerings. Obviously I have not been able to look at every prospectus, but of the massive number I have seen, there is no fraud. Anyone who bought those securities either did not read the prospectus or is too dim to be allowed outside without a handler. I include the managers of FNMA and FHLMC in that analysis.

I have no interest in or affection for Countrywide. Countrywide was owned/controlled by leftists, and Countrywide was purchased by a leftist owned/controlled bank. I strongly suspect the lawsuits are nothing more than prosecutorial grandstanding in an election year, with no substantial basis. No wonder people regard attorneys so badly.

Ronnie Raygun

October 24th, 2012
8:04 pm

“Too bad the banks can’t countersue the government for forcing them to grant subprime mortgages under the Community Reinvestment Act.”

That’s because you can sue for the fictions of your fevered imagination. Gotta have facts Kiddo.

You know it

October 24th, 2012
8:11 pm

Ragnar

Are facts ever your friend or is bs just how you roll?

“During the 2008 election cycle, Countrywide’s company PAC raised $259,200 and donated $198,000 to federal candidates, with about 60 percent of that sum benefiting Republicans.

In 2008, the company also spent $796,000 on federal lobbying, down from a peak of $1.5 million in 2005.”

http://www.opensecrets.org/news/2011/02/ex-countrywide-chairman-angelo-mozilo.html

You know it

October 24th, 2012
8:14 pm

Name Cycle Total Party Coded Not Party Coded To Dems To Repubs
Mozilo, Angelo R. & Phyllis ALL $117,943 $74,443 $43,500 $23,248 $51,195

Don’t let your bias and bs get in the way of the facts Ragnar……….. Otherwise you would be you

Earnestly

October 24th, 2012
8:16 pm

Wait, Wait, Wait a minute! Banks knowingly sold homes to people that they knew couldn’t afford them?Are you saying that banks actually had some complicity in the housing crash? It wasn’t evil home buyers fooling innocent bankers? I appreciate the straightforward non-partisan tone to this column but if this gets out, they may cancel your membership in the republican fan club.

Music City Dawg

October 24th, 2012
8:24 pm

Let’s see….a few days after B of A announced year end (could have been quarterly) earnings of $1 Billion the gov’t has decided to sue them. Sounds real strange to me. I think B of A is being targeted since they do have some money and the gov’t which is bankrupt doesn’t have any.

Music City Dawg

October 24th, 2012
8:28 pm

Ronnie Raygun is correct. The Community Reinvestment Act which was started by Jimmy Carter when he was president is the real culprit in the mortgage mess.

Hillbilly D

October 24th, 2012
8:53 pm

maybe this lawsuit will give us a clearer picture of the symbiotic partnership between Big Finance and Big Government that nearly brought the country to its knees.

I hope it does but I wouldn’t hold my breath.

Jeffrey

October 24th, 2012
9:03 pm

Enter your comments here

dabir dalton

October 24th, 2012
9:06 pm

They didn’t just nearly bring the country to its knees – They put the country on it knees and exposed the fallacy and intellectual dishonesty of those who promote conservative economic theory and their willingness to financially destroy the the working and middle classes to make a profit.

Dusty

October 24th, 2012
9:14 pm

What? BOA/COUNRYWIDE?? I don’t know nothin’ ’bout birthin’ blockbusters!!

drew

October 24th, 2012
9:14 pm

I’ve no sympathy for BOA whatsoever. And yes, it is personal. After a medical condition left my spouse unemployed, we attempted for nine months to short sell our home. The kicker – we had offers on the house the entire nine months, but BOA declined them all and foreclosed on us. The final insult, in a foreclosure letter to us they referred to me as another person ( I assume someone else they were foreclosing on). I smile now whenever I see BOA in the news.

KJ

October 24th, 2012
9:16 pm

Holmes, nothing that goes wrong on this site would surprise you if you witnessed what goes on at Coxnet. I had the misfortune of working there, and it’s a fustercluck of the highest order.

Also, BoA deserves everything they get, and I hope the gov’t sticks it in and breaks it off.

@@

October 24th, 2012
9:23 pm

They [Fannie & Freddie] also spent staggering amounts of money on campaign contributions, lobbying efforts, and charitable donations in order to garner support. They were also well connected with Washington insiders who helped them quash potential regulations and silence dissenters.

From 2000 to 2008, the GSEs made $14.6 million in donations to several Congressional campaigns. In total, from 1998 to 2008, Fannie and Freddie spent $79.5 million and $94.9 million, respectively, on their efforts to lobby Congress. Further, the GSEs could attack any dissenters by labeling them “anti-homeowner.” The GSEs were also very good at maintaining a positive public image. For example, Fannie Mae’s foundation provided significant contributions to groups like the Congressional Black Caucus and the Congressional Hispanic Caucus.

Even when individuals did speak out against the GSEs’ risky practices, their warnings were never heeded. In 2005, Federal Reserve Chairman Alan Greenspan said that “if [Fannie and Freddie] continue to grow, continue to have the low capital they have, [then] they potentially create ever growing potential systemic risks down the road.” President Bush also publicly expressed his concern over the increased risk that the GSEs posed in 2004. However, in response to his warning, twenty-seven House Democrats sent the President a letter condemning his statements and defending the GSEs, stating that “an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.” GSE executives also supported the focus on affordable housing over “safety and soundness,” as it helped them increase their profits and achieve the housing goals that the government set for them. The fact that nobody wanted to criticize the GSEs for their risky practices and that Congress did not push regulations or increased capital requirements upon them ultimately contributed to their fall.

http://ebook.law.uiowa.edu/ebook/content/promoting-homeownership-us-rise-and-fall-fannie-mae-and-freddie-mac

Oh well…

The Anti-Politicist

October 24th, 2012
9:25 pm

WAKE UP!!!!!!!!!!!!!! All the politicians suck.. They’re all crooks and power mongers… I laugh at you clowns who sit around and argue this so fervently… Please don’t tell me I don’t care… I do… But I see that there are no politicians putting the people of this country before themselves and their own enrichment and glorification. WAKE UP!!!!!!!!!!!!!!

Mr. Holmes

October 24th, 2012
9:32 pm

Heh. You said Coxnet.

I Report (-: You Whine )-: mmm, mmmm, mmmmm! Just sayin...

October 24th, 2012
9:56 pm

You want proof?

The CRA was not a static piece of legislation. It evolved over the years from a relatively hands-off law focused on process into one that focused on outcomes. Regulators, beginning in the mid-nineties, began to hold banks accountable in serious ways. Banks responded to this new accountability by increasing the CRA loans they made, a move that entailed relaxing their lending standards.

It was illegal to check somebody’s credit history.

Brought to you by the dummycrats, of course.

The Anti-Politicist

October 24th, 2012
10:12 pm

The Democraps are socialist/commies… The Republicants are fascist/nazi’s… Pick your poison….

bigbill

October 24th, 2012
10:13 pm

@ one perspective 4:49 PM Just for the record I am quite certain that Countywide did not give Barney Frank a special deal on a mortgage loan. It did not make Barney Frank a mortgage loan of any kind. Chris Dodd, yes, along with a whole raft of other important influential elected and appointed federal government officials. Ifd I am wrong, please let me know.