Bank of America officials said Wednesday that the federal government made a mistake when calculating a proposed penalty on its gross "gain" from defective mortgages sold by its Countrywide unit.
The government is seeking $2.1 billion in penalties after a jury found the bank liable for fraud over the Countrywide mortgages. Prosecutors had initially asked for $863.6 million.
Attorneys for the bank, in court filings, said the government's request "contradicts every pertinent legal principle" and that the bank should only have to pay the amount it made in profit from selling the loans, which it contends is nothing. The law requires the penalty amount to be calculated by measuring the bank's "pecuniary gain," or amount of profit that it made from selling the materially defective HSSL loans, the bank said. It estimated that amount to be zero, according to the filing.
Bank of America acquired Countrywide in July 2008. The case focused on the mortgage lending process at Countrywide known as the "High Speed Swim Lane," or alternatively "HSSL" or "Hustle." The government argued that Countrywide's program emphasized and rewarded employees for the quantity rather than the quality of loans produced and eliminated checklists designed to ensure that loans were sound.
A federal jury in New York in October found Bank of America and Rebecca Mairone, a former mid-level executive at Countrywide, each liable for fraud in the civil lawsuit. Bank of America and Mairone both denied any wrongdoing.
Bank of America previously said it is evaluating options for an appeal. A spokesperson could not be reached Thursday for comment.
Any penalty would be assessed by U.S. District Judge Jed Rakoff. Oral arguments have been set for March 13.