Federal Suit Alleges Bank of America 'Hustled' U.S. Agencies for Billions

Bank of America, no stranger to billion-dollar lawsuits, today faces another one - a $1 billion suit from the Justice Department.  The Oct. 24 complaint alleges the New York City-based bank fraudulently sold defective mortgages to Fannie Mae and Freddie Mac that triggered over $1 billion in losses for taxpayers and thousands of foreclosures.

The suit alleges the fraud was committed from at least 2008 through 2009.

In a prepared statement, the Justice Department said this is the first case involving Fannie and Freddie, which were the major purchasers of mortgage securities from commercial banks like Bank of America.

Huge mortgage losses at Fannie Mae and Freddie Mac forced a government takeover of both in September 2008. The two government sponsored enterprises (GSEs) were placed into federal conservatorship.

In his statement, Preet Bharara, U.S. Attorney for the Southern District of New York alleges Bank of America's fraudulent scheme was commonly known inside the bank as "the Hustle."

The suit alleges "the Hustle" was a nickname for the bank's "High-Speed Swim Lane," or HSSL program, designed to streamline the mortgage origination process. Instead, the government alleges it was "intentionally designed to process loans at high speed and without quality checkpoints, and generated thousands of fraudulent and otherwise defective residential mortgage loans."

The government says the program was started by mortgage lender Countrywide Financial, but continued after Countrywide was purchased by Bank of America in 2008. The fraud ran through 2009, the suit alleges.

"For the sixth time in less than 18 months, this office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis," Bharara said in his statement. "The fraudulent conduct alleged in today's complaint was spectacularly brazen in scope."

Bank of America (NYSE: BAC) agreed to an $8.5 billion settlement last year in which it paid other investors burned by fraudulent mortgage securities. Those investors included money manager BlackRock (NYSE: BLK), insurer MetLife (NYSE: MET), investment management firm PIMCO and Goldman Sachs (NYSE: GS)