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Bank of America says it should not pay penalties in ‘Hustle’ case

Bank of America told a federal judge that it should not have to pay penalties after a jury found its Countrywide unit guilty of knowingly selling bad home loans to Fannie Mae and Freddie Mac.

The U.S. government is seeking $864 million in penalties from the bank for losses incurred by the government-controlled mortgage giants over loans generated by Countrywide Financial Corp.’s “Hustle” process. Last month, a jury in the civil case found Countrywide and former executive Rebecca Mairone guilty of fraud over defective mortgages generated by the Hustle process, which the government said handled loans at a high speed and without regard for quality.

The Charlotte-based bank, in a court filing Wednesday night, said it can be fined at most $1.1 million under the Financial Institutions Reform, Recovery and Enforcement Act.

“Given the facts of this case,” the penalty should be zero, the bank said, adding that the Hustle process ended before it acquired Countrywide in 2008.

“Bank of America was an innocent acquirer in this case,” the bank said. “It purchased a financially distressed Countrywide during the worldwide economic crisis after all of the alleged wrongdoing in this case was over.”

The government can’t show that Fannie’s and Freddie’s losses resulted from misrepresentations about the Hustle loans, “as opposed to other factors such as the worldwide mortgage crisis, which had an enormous effect on mortgage loans purchased by Fannie and Freddie during the relevant time period,” the bank said.

The government is also seeking civil penalties against Mairone, a former chief operating officer for Countrywide. In a court filing Wednesday, her attorneys described her as a single mother and said it is “unnecessary and excessive” to penalize her.

“Unjustly depicted in the media as the villainous face of the mortgage crisis and in professional limbo, Ms. Mairone is facing ruin,” they said.

The Hustle case stemmed from a whistle-blower lawsuit filed by former Countrywide executive Edward O’Donnell, who said an increasingly competitive mortgage market in the mid-2000s led to Countrywide creating the Hustle, or “High-Speed Swim Lane,” process. The process relied on an automated underwriting system, and “long-standing quality control checks” were removed, O’Donnell said.

The Hustle lawsuit was the first civil fraud case brought by the Department of Justice over mortgage loans sold to Fannie or Freddie.

A hearing on the penalties is set for Dec. 5 before Judge Jed Rakoff in District Court for the Southern District of New York. Researcher Maria David contributed.

Roberts: 704-358-5248; Twitter: @DeonERoberts
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