24 October 2013, 11:38

Bank of America found liable in mortgage fraud

Bank of America found liable in mortgage fraud

Bank of America, one of the nation’s largest banks, was found liable on Wednesday of having sold defective mortgages, a jury decision that will be seen as a victory for the government in its aggressive effort to hold banks accountable for their role in the housing crisis.

Moreover, the jury also found a top manager at Bank of America’s Countrywide Financial unit liable, pinning some — if not all — of the responsibility for the bad acts on an individual.

The Calabasas company, once considered the crown jewel of American mortgage lending, made big profits unloading loans that were later rendered worthless during the housing crisis in 2008.

The decision is the first civil fraud verdict against Countrywide, and experts said the decision would probably invite more aggrieved investors to sue and could embolden other investigations aimed at Countrywide or other banks.

"That's a very significant win for the government," said Thomas Gorman, a partner at law firm Dorsey Whitney in Washington. "This kind of verdict will only strengthen government's negotiating position and probably make other major banks reevaluate what their position is."

Prosecutors have asked that Bank of America pay a fine of $848 million, although the judge presiding over the case, Jed S. Rakoff, will determine the penalty. Judge Rakoff has earned a reputation in recent years for criticizing regulators for not being tough enough on financial cases.

The civil case, which has been tried in a Federal District Court in Manhattan, follows close on the heels of JPMorgan’s tentative agreement, in which the bank is said to be ready to pay $13 billion in fines and payments to settle with various state and federal authorities for its own exposure to the mortgage mess.

The case was one of three lawsuits in New York where judges had endorsed that interpretation. Banks have generally argued that the interpretation is contrary to the intent of Congress, which they said is more focused on others committing fraud on banks.

Bank of America's case was the first to go to trial, a rarity given that banks more typically choose to settle government claims instead of face a jury. But Bank of America had said that it "can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

Voice of Russia, Reuters, New York Times

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