U.S. prosecutors told a federal judge that Bank of America Corp. should pay the maximum penalty of $863 million for selling defective loans to Fannie Mae and Freddie Mac
Bank of America's Countrywide unit was found liable by a jury in Manhattan federal court last month for selling the government-sponsored entities thousands of defective loans in the first mortgage-fraud case brought by the U.S. to go to trial. Prosecutors urged the large penalty given the egregiousness of the fraud.
The case was the first to go to trial brought by the U.S. against a bank over defective mortgages. It originated as a whistle-blower action against the bank brought by former Countrywide Financial executive Edward O'Donnell.
Countrywide took part in the fraud to boost profits, making at least $165 million, a lawyer for the government said at the start of the trial in September.
Given the degree of Countrywides culpability, the public damage and the banks ability to pay, the government said the maximum penalty under law is warranted.
The banks fraud was "simple but brazen," prosecutors wrote in a court filing. "They made bad loans and they knowingly sold those bad loans as good loans to cheat Fannie Mae and Freddie Mac out of money.
The filing represents a jump over what the government estimated the gross losses were last month. Assistant U.S. Attorney Pierre Armand at the time asked U.S. District Judge Jed Rakoff to impose a penalty of $848 million.
Rakoff, who presided over the trial, told attorneys last month he would determine the amount of any penalty at a later date. Arguments in the matter are scheduled for Dec. 5.
The jury also found former Countrywide Financial Corp. executive Rebecca Mairone liable for defrauding the U.S. Mairone was the only individual named as a defendant in the governments lawsuit. In its Nov. 8 filing, the government asked the court to impose a penalty on her commensurate with her ability to pay.
Countrywide, based in Calabasas, Calif., was once the biggest U.S. residential home lender, originating or purchasing about $1.4 trillion in mortgages from 2005 to 2007. The bulk of them were sold to investors as mortgage-backed securities. Bank of America acquired Countrywide in 2008.