The fine was against Countrywide, which Bank of America purchased in 2008 as the financial crisis was unfolding. It is the latest legal ruling against Wall Street.
A jury found in October 2013 that BofA was liable for Countrywide’s role in selling risky loans to the government housing agencies through a program nicknamed the “Hustle” from August 2007 to May 2008. The jury found that Countrywide executives deliberately misrepresented the quality of mortgages being sold.
In his blunt ruling, Judge Jed Rakoff said the program was “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.”
This is the first time a bank or its executives have been found liable under federal law for mortgage fraud leading up to financial crisis, said Preet Bharara, U.S. Attorney for the Southern District of New York, in a statement. It is also the first time civil penalties have been imposed on a bank of its executives.
“(It is) clear that mortgage fraud cannot be viewed as simply another cost of doing business in the financial world,” Bharara said.
A spokesman for Bank of America said the bank is exploring its legal options following Rakoff’s decision, including an appeal.
“We believe (the penalty) simply bares no relation to a limited Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company,” BofA spokesman Larry Grayson said.
Countrywide is one of many mortgage companies that sold risky mortgages to Fannie Mae and Freddie Mac leading up to the housing bubble popping and subsequent financial crisis.
Bank of America, as well as JPMorgan Chase, have paid out billions of dollars in legal settlements for their roles in the financial crisis, mostly through JPMorgan’s purchases of Bear Stearns and Lehman Brothers, and Bank of America’s acquisitions of Countrywide and Merrill Lynch.
Rakoff imposed a separate $1 million penalty against Rebecca Maironne, a former Countrywide executive, for her role in the program. Lawyers representing Maironne did not immediately respond to a request for comment.