Thursday, October 24, 2013
The New York Times reports today that a jury in a US District Court in Manhattan found Bank of America liable for bad mortgages that were originated by Countrywide and then sold to Fannie Mae and Freddie Mac which sustained more than $1 billion in losses on the mortgages. Bank of America purchased Countrywide in 2008 for $4 billion and has already paid $50 billion in fines, penalties and settlements for Countrywide-related claims. In this case, the evidence was that Countrywide created a system of bonuses for its brokers that were based on how quickly they originated loans without regard to the credit-worthiness of the borrowers. Despite representations by Countrywide to the contrary, a large percentage of these mortgages defaulted which lead to the big losses by Fannie and Freddie. Today's article indicates that while the potential losses to Bank of America in the case will not be particularly onerous (the trial judge will set the damages but they are expected to be less than $1 billion), the government's success in this case could open the floodgates for additional litigation against Bank of America.