While Bank of America Corp (NYSE:BAC) famously claims that “Countrywide is on your side,” it now finds Countrywide to be on the wrong side of a court ruling. It wouldn’t be difficult to do a simple Google search, I’m guessing, to find a writer or twelve whom have suggested that “Countrywide is not on your side,” but in the case of .S. v. Countrywide Financial Corp., 12-cv-01422, U.S. District Court, Southern District of New York, a federal jury agrees.
Countrywide liable of defrauding
Within the last few hours, the jury in the case found Countrywide liable of defrauding both Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) by selling each thousands of defective loans. In addition, the jury found the sole individual named in the suit, Rebecca Mairone, liable for defrauding the government as well.
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While the U.S. District Judge Jed Rakoff, who presided over the trial, will deliver the final determination regarding the amount of the civil penalty, the United States has asked for a judgement exceeding $848 million. That number represents the gross loss to Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) as calculated by the government. The net loss to the two entities is estimated at $131 million and Jed Rakoff could go that route as well, or somewhere in between when he delivers his penalty.
HSSL program in question
The trial revolved around a loan program that Countrywide called “High Speed Swim Lane,” or HSSL, that ran until 2008. The HSSL program allowed Countrywide to realize earnings of around $165 million using the program during a “cratering” market for subprime mortgages.
In its first legal action against a bank over defective mortgages, the United States joined a whistle-blower action against Bank of America Corp (NYSE:BAC) filed by former Countrywide executive Edward O’Donnell.
Jaimie Nawaday on Countrywide’s loan processing
In closing arguments yesterday, Assistant U.S. Attorney Jaimie Nawaday said the case was “about greed and lies.” She maintained that the speed with which 28,800 loans were processed was reduced to as little as 10 days from 60 days. Citing emails from Countrywide employees, Nawaday showed that these loans were being referred to as both “loser loans” and loans that were “in the ditch.”
Mairone took the stand in her own defense, but seemingly had little to offer the jury based on its decision today.
Countrywide’s lawyer, who shares a given name and an Irish stubbornness with me, argued the charges to no avail in his closing statements.
“The government is wrong,” Sullivan told jurors. “There is no fraud, no misrepresentations and no violations of law.”
“The HSSL program was all about speed and volume and not about quality,” Nawaday said, reiterating what whistle-blowing executive Edward O’Donnell maintained in his testimony. “Quality was no more than a distraction.”