A 10-person panel of jurors is holding Bank of America and a mid-level manager liable for high-risk mortgages originated by Countrywide through a program known as Hustle and then sold off to Fannie Mae and Freddie Mac.
After hearing arguments for four weeks in a Manhattan federal court, the jury returned a decision finding BofA liable on one charge of fraud in the civil case and finding Rebecca Mairone, who worked for Countrywide from 2006 to 2008 as COO of one of its lending divisions, liable on the civil fraud charge she faced.
It’s among only a handful of cases stemming from the subprime and foreclosure crisis to go to trial and the first time an individual has been singled out as being responsible for personally contributing to the housing market’s implosion—and government officials are relishing the victory. “Bank of America chose to defend Countrywide’s conduct with all its might and money, claiming there was no case here. The jury disagreed,” said Preet Bharara, Manhattan U.S. attorney and the prosecutor in the case.
Bharara says the Hustle program treated quality control and underwriting “as a joke” and he faulted BofA and Mairone for “making disastrously bad loans and systematically removing quality checks in favor of its own balance.” He added, “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. That profit, however, was built on fraud.”
The case was decided nearly a year to the day after the U.S. Department of Justice filed its complaint, alleging Countrywide used the Hustle program to unload poorly underwritten mortgages to Fannie Mae and Freddie Mac, to the tune of $848.2 million in gross losses for the GSEs, according to court documents. Mairone was added as a co-defendant in January because in her position, she was responsible for managing the High Speed Swim Lane program, or Hustle.
For five years, though, state and federal officials have neglected to go after subprime kingpin and CountrywideCEO Angelo Mozilo, who despite his track record has escaped any and all repercussions related to his mortgage dealings and been subject only to a fine for insider trading—of which he only had to pay two-thirds. Instead, U.S. Attorney Preet Bharara zeroed in on a mortgage exec who’s still visible in the marketplace and whose tenure with Countrywide was short-lived and low-profile.
Mairone, who is now a home lending executive with JPMorgan Chase, became part of the Bank of America team when it acquired Countrywide in 2008, and she’s spent the better part of her career laboring to keep financially distressed borrowers in their homes.
For nearly two years, she was BofA’s national default servicing executive, overseeing loss mitigation and foreclosure prevention efforts for hundreds of thousands of distressed homeowners. In 2011, Mairone was named Bank of America’s national mortgage outreach executive. Under her supervision, the company doubled its outreach staff, opened dozens of regional customer assistance centers in hard-hit markets, and hosted and participated in hundreds of local home preservation workshops with Mairone herself traveling from city to city to ensure homeowners attending the events got the assistance they needed.
A court date of December 5 has been set to begin the penalty phase of the case. Ultimately, the decision of how much BofA and Mairone will be fined is in the hands of U.S. District Judge Jed S. Rakoff, a court official well-known for his tough stance against banks and the financial services industry.