Bank of America Corp.'s Countrywide unit should pay the maximum of $2.1 billion in penalties for selling defective mortgage loans to Fannie Mae and Freddie Mac in the run-up to the 2008 financial crisis, the U.S. said.
U.S. District Judge Jed Rakoff in Manhattan is considering how much to penalize the bank following months of arguments over the size of the civil fine that Charlotte, North Carolina-based Bank of America should pay in the first mortgage-fraud case brought by the U.S. to go trial. The bank has claimed it should have to pay $1.1 million at most.
"To punish defendants for their culpability and bad faith, and to deter financial institutions and their executives who would engage in similar fraudulent mortgage schemes, the court should impose the maximum penalty," Manhattan U.S. Attorney Preet Bharara said in a court filing yesterday.
Countrywide is still a defendant in a securities fraud case brought by the Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, over billions of dollars in residential mortgage-based securities. Bank of America and Countrywide also face $10 billion in claims by American International Group Inc. over mortgage securities.
'Pecuniary Gain'
Rakoff on Dec. 5 asked for a supplemental briefing to determine Countrywide's "pecuniary gain" from a "scheme to defraud," according to court papers.
Bharara's lawyers asked the court to use "gross gain, rather than net gain" as the penalty benchmark, and to define "gain" as "all revenue or proceeds derived from the wrongdoing" rather than "net profit," as the bank suggested.
"This claim bears no relation to a limited Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," Lawrence Grayson, a spokesman for the bank, said today in a phone interview. "We will present the relevant facts in a detailed response soon."
Countrywide and Rebecca Mairone, a former executive with the mortgage lender, were found liable in October for selling thousands of bad loans to the two government-sponsored enterprises.
Rakoff should impose a penalty on Mairone "commensurate with her ability to pay," government lawyers said in yesterday's filing.
Investor Accord
Bank of America has agreed to pay $500 million to settle securities law claims by investors who said they were misled into buying Countrywide's mortgage-backed securities. An $8.5 billion settlement with investors who claim Countrywide failed to repurchase defective mortgages pooled is waiting to be approved by a New York state judge.
