Bank of America Ordered to Pay Almost $1.3bn Mortgage Fraud Fine

A US judge has ordered Bank of America to pay a $1.27bn penalty for its role in selling risky mortgages to government-backed home finance giants Fannie Mae and Freddie Mac around the time of the 2008 financial crisis.

The products were marketed as safe investments.

The penalty against Countrywide Financial, which Bank of America acquired in 2008, was below the $2.1bn (£1.2bn, €1.6bn) sought by the US Department of Justice.

US District Judge Jed Rakoff's ruling in Manhattan came after a jury in October 2013 found the second-largest US bank liable for the sale of defective loans by Countrywide.

Rakoff also ordered former mid-level Countrywide executive Rebecca Mairone, the only individual charged, to pay $1m. The judge cited her "leading role" in the fraud and termed some of her testimony "implausible."

In his ruling, Judge Rakoff said the programme was "driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole," AP reported.

Bank of America (BofA) spokesman Lawrence Grayson told Reuters that an appeal was possible.

Mairone's lawyer Marc Mukasey said that "more powerful people chose her as a scapegoat…" and that they will pursue the case to "clear her name."

Preet Bharara, US Attorney for the Southern District of New York, said in a statement: "This is the first case in which a bank or any of its executives has been found liable under [federal law] for mortgage fraud leading up to the financial crisis, and now it is the first case in which civil penalties have been imposed upon a bank or any of its executives following such a finding.

"The jury verdict and subsequent imposition of penalties make clear that mortgage fraud cannot be viewed as simply another cost of doing business in the financial world."

JPMorgan Settlement

JPMorgan in 2013 pledged to pay the largest ever amount by a public company to settle lawsuits with regulators, after the bank admitted wrongdoing in selling poor-quality mortgage-backed securities to state-controlled firms.

JPM, in November 2013, agreed to pay a $13bn fine to the US government, in order to settle claims that it misrepresented the quality of its mortgage assets in the run up to the financial crisis.

The deal included a $4bn relief package with the US Department of Housing and Urban Development, and a $4bn settlement with the Federal Housing Finance Authority (FHFA).

The BofA case is US ex rel O'Donnell versus Bank of America Corp et al, US District Court, Southern District of New York, No. 12-01422.