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Bank of America (NYSE: BAC ) is the target of a $1 billion lawsuit filed today in Manhattan on behalf of the U.S. Justice Department, alleging fraudulent loan practices. The lawsuit seeks to recover losses suffered by Freddie Mac and Fannie Mae after purchasing high-risk loans from Countrywide, particularly during the years 2007 to 2009. Bank of America acquired Countrywide in 2008.
Federal lawyers allege that Countrywide implemented and Bank of America continued "a new loan origination process called the 'Hustle,' which was intentionally designed to process loans at high speed and without quality checkpoints, and which generated thousands of fraudulent and otherwise defective residential mortgage loans sold to Fannie Mae and Freddie Mac that later defaulted, causing over $1 billion ... in losses and countless foreclosures."
Manhattan U.S. Attorney Preet Bhara said the alleged conduct was "spectacularly brazen in scope." Bhara intends to use a portion of the proceeds to reimburse Freddie and Fannie.
According to court documents, Countrywide executives were not only aware of quality concerns involving hustle loans, they elected to ignore them. In 2008, the suit alleges, an internal quality review conducted by Countrywide Financial found 57% of hustle loans went into default.
Bank of America, along with Citigroup (NYSE: C ) , JPMorgan Chase (NYSE: JPM ) , and others, have been the targets of several mortgage-related lawsuits, including suits brought by the Federal Housing Finance Agency. However, according to Bhara, this is the first civil lawsuit brought by the Justice Department specifically relating to loans sold to Fannie Mae and Freddie Mac.