Bank of America, accused of lying about the quality of mortgages it passed along to financial firms Fannie Mae and Freddie Mac, was found liable for fraud yesterday in a civil case the government said captured the frenzied pursuit of profits at all costs just before the US economy collapsed in 2008.
A Manhattan jury returned its verdict following a month-long trial focusing on prime mortgages that Bank of America's Countrywide Financial unit completed in late 2007 and 2008.
US District Judge Jed Rakoff said he would determine today when a penalty phase will begin.
The verdict was returned against Bank of America, Countrywide and a former executive, Rebecca Mairone.
Mairone's lawyer Marc Mukasey called her "a model of honesty, integrity and ethics".
"She never engaged in any fraud because there was no fraud. We'll fight on," he said.
US Attorney Preet Bharara said the companies and Mairone were "liable for making disastrously bad loans and systematically removing quality checks in favour of [Bank of America and Countrywide's] balance".
"In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow," he said. The trial related to mortgages the government said were sold at break-neck speed without regard to quality as the economy headed into a tailspin.
The government had accused the financial institutions of urging workers to churn out loans, accept fudged applications and hide ballooning defaults.
Assistant US Attorney Jaimie Nawaday, in her closing argument, said the case was about "greed and lies".
"It is about people at Countrywide saying to each other that their loan quality is in the ditch, while telling Fannie Mae and Freddie Mac that their loans are investment quality," she said.
Fannie and Freddie, which packaged loans into securities and sold them to investors, were effectively nationalised in 2008 after nearly collapsing.
Government lawyers said Countrywide tried to churn out more mortgage loans through a programme called the Hustle, shorthand for high-speed swim lane, which operated under the motto, "Loans Move Forward, Never Backward".
The government said the programme eliminated checks meant to ensure mortgages were made to borrowers unlikely to default.
- AP