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Countrywide whistleblower says lax lender must be accountable

By Patricia Hurtado
Bloomberg News

NEW YORK A former official at Bank of America’s Countrywide unit said he contacted federal authorities and filed a whistleblower suit against the lender after reading that the government was weighing a settlement with his ex-employer.

Edward O’Donnell, who now works for Fannie Mae, said he contacted the office of Manhattan U.S. Attorney Preet Bharara in February 2012 after reading in news accounts that the Justice Department was considering settling with large U.S. banks accused of selling bad mortgages to government-sponsored enterprises, or GSEs, such as Fannie Mae and Freddie Mac.

In a complaint filed that month under the False Claims Act, O’Donnell alleged that Countrywide Financial Corp. issued defective mortgages under its “High Speed Swim Lane” program, or HSSL, and then sold them to Fannie Mae and Freddie Mac. The U.S. later joined the suit. The trial began this week in federal court in New York.

“The government didn’t have any information about the HSSL and the fact that loans had been sold to the GSE’s and others such as Fannie Mae and Freddie Mac that clearly didn’t qualify as quality investment grade,” O'Donnell testified Friday. “They weren’t aware of it, so no one had been held accountable.”

The U.S. alleges that under the HSSL program, Countrywide boosted profits by “benching” underwriters and replacing them with inexperienced “loan specialists” who were forced to meet quotas and ignore quality control.

Under whistle-blower laws, O'Donnell said he could collect as much as $1.6 million of any monetary damages awarded to the U.S. if the jury finds Bank of America, which purchased Countrywide in 2008, liable for fraud.

Brendan Sullivan, a lawyer for Countrywide, told the jury in his opening statement that while the U.S. claims the loans were faulty, the bank had actually created a process to speed the approval of prime loans after it shifted focus away from subprime loans. He said no one at Countrywide made misrepresentations to or defrauded Fannie Mae or Freddie Mac.

The government had said HSSL continued after Charlotte-based Bank of America bought Countrywide. But it has since modified that claim, saying HSSL ended in May 2008. Bank of America bought Countrywide in July of that year.

The bank also notes that HSSL ended before it bought Countrywide and says it believes no fraud was committed.

On Thursday, O’Donnell testified about a separate Countrywide program, called New Customer Acquisition, that also resulted in fast loan approvals.

O’Donnell described how in mid-2007, some Countrywide officials became concerned after a “loan processor” employee at the lender’s NCA unit concluded the “cleared-to-close” approval process of reviewing and approving paperwork for a home loan in just 13 minutes.

Assistant U.S. Attorney Jaimie Nawaday showed jurors an e-mail indicating that the review process began at 3:53 p.m. and the loan was “cleared-to-close” at 4:06 p.m.

“It would not be enough time,” O’Donnell said, listing the raft of paperwork an employee would have to review including title searches, deeds, taxes, a review of the credit and employment history of the borrower, a determination of whether the home was located in a flood zone, property appraisals and a comparison with similar properties. Staff Writer Deon Roberts contributed.

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