Business

US seeks $864m from Bank of America in mortgage trial

  • 10 November 2013
  • From the section Business
A Bank of America branch in Chicago
Image caption Bank of America bought Countrywide Financial in 2008

The US government has said it is seeking $864m (£540m) in compensation from Bank of America for losses over home loans sold to it by the bank's Countrywide Financial unit.

US attorney Preet Bharara made the request in documents filed late Friday in New York.

The bank was found liable for defrauding two US state-backed mortgage companies by a federal jury last month.

Countrywide was acquired by Bank of America in 2008.

The ruling was a major win for the US government, which launched the case in the wake of the financial crisis.

Reports last month suggested that US banking giant JP Morgan is set for a record $13bn fine to settle investigations into its mortgage-backed securities.

And Wells Fargo agreed to pay $335m to settle claims it misled investors over mortgage-backed bonds.

The US Department of Justice is investigating at least nine banks over their sales of mortgage-backed securities.

'Hustle'

Countrywide was found liable for selling thousands of defective loans to Fannie Mae and Freddie Mac.

The month-long trial focused on a Countrywide programme that was internally called "Hustle" or "high-speed swim lane" which allowed loans to be processed quickly without checking their quality.

The wrongdoing, which mostly took place before Countrywide was acquired, was discovered after a whistleblower filed a lawsuit against the firm.

The US economy witnessed a big boom in its housing market in the lead-up to the 2007-08 global financial crisis.

As house prices continued to rise, many banks looked to cash in on the boom by creating complex financial products that grouped together home loans.

However, a collapse in the housing market saw the value of those investments plummet as the underlying mortgage holders became unable to repay their debts.

This snowballed into the subprime crisis, which hurt investors globally and caused billions of dollars in losses.

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