Thursday, October 24, 2013 08.34 AM / WSJ
Bank of America committed fraud when a unit sold loans to mortgage finance firms Fannie Mae and Freddie Mac in a scheme called the “hustle,” a jury found Wednesday.
In a major win for the U.S. government, a jury Wednesday found Bank of America Corp. BAC -2.13% liable for fraud related to loans its Countrywide Financial Corp. unit sold to mortgage-finance giants Fannie Mae FNMA +24.86% and Freddie Mac FMCC +21.76% in a program called the "Hustle" in 2007 and 2008.
The decision in this civil case marks the first time a bank has been found liable for fraud for its dealings during the mortgage boom, legal analysts said. Bank of America, the second-largest U.S. bank by assets, bought Countrywide in 2008.
The victory could help strengthen the government's hand in other probes tied to mortgage practices and help persuade banks to settle rather than face jury trials.
"After you establish a track record of success, it becomes easier to convince people to plead and assist," said William Black, a law professor at the University of Missouri-Kansas City and a former regulator during the savings-and-loan crisis.
The Justice Department is close to finalizing a $13 billion settlement with J.P. Morgan Chase JPM -1.62% & Co. that would resolve probes into the bank's past sales of mortgage bonds, and Attorney General Eric Holder plans to use the deal as a model for continuing probes of other financial firms' conduct in the run-up to the 2008 financial crisis, according to several people familiar with his thinking.
Justice Department officials intend to seek billions in fines from other banks, pursue criminal cases aggressively and mix penalties with consumer relief that helps homeowners who were harmed by the financial crisis, these people said.