As part of the settlement between the U.S. and the five largest mortgage servicing banks in the country, Loretta E. Lynch, U.S. Attorney for the Eastern District of New York, has announced that the government will also resolve its claims against the Bank of America, Countrywide Financial Corporation and certain Countrywide subsidiaries and affiliates (Countrywide) for underwriting and origination mortgage fraud. Since 2009, the office has been investigating the Bank of America’s lending practices to determine whether the bank, through Countrywide, which the bank acquired in 2008, knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified homebuyers.
The FHA has incurred hundreds of millions of dollars in damages as a result of this conduct. The investigation also encompassed allegations that the bank and Countrywide defrauded the FHA insurance fund by originating mortgage loans that were based upon inflated appraisals. During the investigation, the office determined that the bank’s conduct provides a basis for affirmative civil enforcement under, among other legal remedies, the False Claims Act, 31 U.S.C. §§ 3729-33.
As part of the global settlement, Bank of America will pay $1 billion to resolve the wrongdoing uncovered during the office’s investigation. The settlement will entail an immediate payment of $500 million to provide a recovery for the harm done to the FHA by Countrywide’s conduct. Payment of the second $500 million will be deferred to fund a loan modification program for Countrywide borrowers across the nation with underwater mortgages. Under the terms of the program, Bank of America will solicit all potentially eligible borrowers and provide a loan modification to anyone with an eligible mortgage who accepts the offer. If, after the expiration of three years, the bank has not met its obligation to apply the full $500 million to provide such relief, any remainder will be paid directly to the U.S.
“We announce today the largest ever False Claims Act settlement relating to mortgage fraud," said U.S. Attorney Lynch. "Through their underwriting and origination of tens of thousands of government-insured loans to unqualified borrowers, Countrywide Financial subsidiaries systematically abused the Federal Housing Administration and became some of the main players in this country’s financial crisis. We are committed to protecting the FHA’s ability to provide assistance to qualified low income and first-time home-buyers, and this settlement goes a long way toward that end. It also puts lenders on notice that they will face serious financial consequences for violating their obligations under the FHA’s programs."