A federal judge on Wednesday ordered Bank of America to pay $1.27 billion in damages over shoddy mortgages sold to Fannie Mae and Freddie Mac just before the housing crisis.
Last fall, a jury found the country’s second-largest bank liable for fraud over the sale of bad mortgages to the government-backed entities by its Countrywide Financial unit during 2007 and 2008. Judge Jed Rakoff said in his order on Wednesday that Fannie Mae and Freddie Mac bought $2.96 billion worth of loans from Countrywide in what he called “an intentional scheme to defraud” the mortgage providers (Rakoff noted that only 42% of those loans turned out to be “materially defective,” which is why he reduced the damages).
Rakoff also ordered former Countrywide mortgage executive Rebecca Mairone, who pleaded guilty in the fraud case earlier this year, to pay $1 million in damages for her role in defrauding the government-backed firms.
Writing about Countrywide’s sale of the defective mortgages in his order, Rakoff says “it was from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.”
Lawrence Grayson, a Bank of America spokesman, told Fortune: “We believe that this figure simply bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company. In terms of an appeal, we’re reviewing the ruling and we’ll assess our appellate options.”
Bank of America agreed to pay more than $4 billion to acquire Countrywide in January 2008, at the start of the fiscal crisis, in a deal that was completed later that summer.
Bank of America has been taking a beating over its various legal issues, mostly related to the sale of mortgages and mortgage-backed securities. The bank, whose second-quarter profits fell 43% on $4 billion pre-tax litigation expenses, continues to negotiate with the Justice Department over the exact size of a mortgage-securities settlement. Bank of America is offering $13 billion while the government is negotiating for more.
