Fed Alleges Mortgage Fraud, Sues Bank of America for $1 Billion
10-31-12 - Bank of America was hit with a $1 billion civil mortgage fraud lawsuit Oct. 24 in which Manhattan U.S. Attorney Preet Bharara alleged the bank ran a scheme to defraud Fannie Mae and Freddie Mac, USA Today reported.

According to the lawsuit, Countrywide Financial, which was purchased by Bank of America in 2008, ran a program known internally as “Hustle” or “High Speed Swim Lane,” which pushed mortgages through the approval process without checking for fraud, misstatements and inaccuracies or missing information.

Bharara’s lawsuit, filed in U.S. District Court in New York, is the sixth such case filed against the nation’s biggest banks in the last 18 months by the Manhattan U.S. Attorney’s office.

Lawrence Grayson, spokesman for Bank of America, told USA Today that “at some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

However, federal prosecutors said that it was fraud and not a bad economy that caused Bank of America to allegedly sell unqualified mortgages to Fannie and Freddie in order for them to be packaged into mortgage-backed securities. The lawsuit alleged that Countrywide employees were given bonuses between 2007 and 2009 based on the volume of mortgages they processed. The suit also claimed that the bank’s executives were aware of the faulty mortgages being issued; a January 2008 internal review indicated that 58 percent of “Hustle” loans defaulted, USA Today reported.

The complaint also noted that Fannie and Freddie failed to review the mortgages before purchase, instead relying on the bank’s statements regarding the quality of the loans.

Bank of America has denied all allegations.

Read the full article here.

Ask Henry

Extensive Bank Work - USPAP Violation?
Hi Henry,
I have a question: If an appraiser works for a bank and reviews a property by another appraiser, then does an appraisal on the same property, and is an expert witness in court for the bank -- is that legal or illegal? Does that violate USPAP?

Please advise.

Thank you,

Dear Christine,
There is nothing in the USPAP that directly addresses this question. I am unaware of anything that would make this illegal. xThe USPAP does permit an appraiser to appraise the same property for more than one client. I think this would apply in your situation too. However, the USPAP does have rules about confidentially which would prohibit you from using any confidential information that appeared in the appraisal you reviewed for the bank.

Even so , I would not do it as it sounds to me like you would be looking for trouble. Trying to explain to a judge why you did this, which appears to be a conflict by giving as your reason that it is O.K. because of the USPAP is not a position I would like to be in. You should always think twice about appraising the same property for two different clients unless you feel that one will never have anything to do with the other. I don't even like being in the position of asking the first client for permission to do an appraisal for a second. You maybe bumping into the Confidentially rules by revealing to one client that someone else in interested in their property.



Citing Flawed Valuations, Bank of America Repurchases
$330 Million in Freddie Mortgages

Bank of America will pay Freddie Mac $330 million dollars to buy back allegedly flawed home loans, Bloomberg reported on May 23.

Dan Frahm, a spokesman for the Charlotte, N.C.-based Bank of America, told Bloomberg that the bank has agreed to the repurchase “
because the valuation method used at origination did not meet the investor’s technical requirements.” Frahm noted the flaws have since been repaired.

Bank of America CEO Brian T. Moynihan is looking to mitigate further losses after incurring more than $42 billion dollars in costs related to defective home loans, Bloomberg reported. Buyers and insurers of mortgage securities have insisted on compensation for faulty debt created by Countrywide Financial Corp., which the bank purchased in 2008, at a time when the institution was the nation’s largest residential lender.

Freddie Mac and Bank of America announced a $1.28 billion settlement in January 2011 resulting from bad loans sold through 2008 by Countrywide. Other transactions between the entities were not included in the deal, and a portion of the loans covered by Freddie’s latest announcement had more recent origination dates.

Bank of America’s backlog of pending requests for
refunds on shoddy loans reached a record $16.1 billion in the first quarter 2012 as the dispute widened between BOA and Fannie Mae, which ceased accepting new loans from Bank of America in January, according to the Bloomberg report.

“It is also unclear if this is a one-time issue or a process that will be revisited at some regular interval,” the Barclays analysts told Bloomberg. “Another concern would be whether similar buyouts are being considered or being implemented at Fannie Mae.”

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Sound Off!

Too Big to Be Allowed to Fail?
A Response to your Editorial posted 2/2/2011:

Dear Henry!

I completely agree with your analysis -- except it's too late to rein in the Big Banks. They've already spent the money on their bailouts, bonuses, expense accounts, etc., and left the taxpayers are on the hook for every penny.

In my humble opinion, this would never have happened if the Justice Department had done its job properly back in the 1980s during the Savings and Loan debacle, and publicly tried and convicted 4 of the Keating 5, then thrown them in jail for a nice long cooling off period...say 5-10 years!?

When the sleazy creeps at the Banks and on Wall Street found out that only 1 high profile bigshot was going to "do time," it was a clear signal: "Go for it, 'cause they won't do anything except slap us on the wrist."

Leland Turner


Are the Big Banks REALLY Too Big to Be Allowed to Fail?

The public relations firms of the big banks in the United States and England are busily grinding out PR releases, trying to convince us that they are critical to reducing unemployment and jump starting our economy. It reminds me of the old joke about the person who murdered his parents telling the judge to show mercy because he is an orphan!

There are many institutions who shared in the creation of the economic mess we are now in, that directly affects appraisers and impacts the future of our profession. My nomination for the top of the list of miscreants are the "big banks." Admittedly, they had lots of company in enabling the housing market implosion, but without their profligate involvement, the subprime mess might have been avoided. The resulting foreclosures and the continuing slow recovery, as well as the malignant unemployment problem, are directly linked to their greed and disregard of everyone’s economic well being — except their own, of course...

Lurid tales of big bank foreclosure shenanigans are being reported in the press regularly. Judges all over the country are up in arms about the careless and often fraudulent papers presented to the courts in many foreclosure actions.I think we are just beginning to learn the true scope of the big banks' financial problems. The four largest banks in the US are Bank of America, CityGroup, JP Morgan and Wells Fargo. Gretchen Morgenson, a financial reporter for the NY Times, writes that these four banks have already set up reserves of about $10 billion dollars for possible mortgage repurchases. However, this may just be a drop in the bucket, considering that $5 trillion in mortgage securities were issued from 2005 to 2007. I think their mortgage losses may be big enough to put one or more of them out of business, and they still have to cope with gigantic credit card losses that haven't really been dealt with yet.

When the Feds put Lehman Brothers out of their misery, we were told that the economy could not get along without them. However, we seem to be doing just fine, as evidenced by the size of the bonuses paid by the other investment bankers to their employees in 2010.

When we are told that one of our big banks will need to be bailed out with our money because they are "too big to be allowed to fail," we shouldn't believe them! We have no shortage of banks in the United States, and bailing them out of self-inflicted bad investments is another example of allowing financiers to gamble with our money, and suffer no ill consequences! It proved disastrous in the 1980s savings and loan scandal, when it cost depositors and investors over $160 billion dollars. It's time for Americans to recognize that "banker mentality" is all about short term profits and bonuses, rather than stability, sound underwriting and sensible lending parameters.
HSH