Bank of America is found liable for Countrywide mortgage fraud

A civil jury finds Bank of America liable for mortgage fraud at Countrywide Financial, which the bank bought in 2008. The verdict could embolden other investigations.

A Countrywide office in Beverly Hills in 2008. Bank of America bought the mortgage lender that year during the height of the housing crisis. (Kevork Djansezian, Associated Press / June 25, 2008)

 

By Andrew Tangel  October 23, 2013, 5:56 p.m.

NEW YORK — Bank of America has been found liable for fraud in the sale of faulty loans by its Countrywide mortgage unit, a major victory for the federal government as it continues to pursue cases stemming from the financial crisis.

A federal jury in Manhattan sided with prosecutors who alleged Countrywide Financial Corp. churned out risky home loans in a process called "the Hustle" and then sold them to mortgage giants Fannie Mae and Freddie Mac.

The Calabasas company, once considered the crown jewel of American mortgage lending, made big profits unloading loans that were later rendered worthless during the housing crisis in 2008.
The decision is the first civil fraud verdict against Countrywide, and experts said the decision would probably invite more aggrieved investors to sue and could embolden other investigations aimed at Countrywide or other banks.

"That's a very significant win for the government," said Thomas Gorman, a partner at law firm Dorsey Whitney in Washington. "This kind of verdict will only strengthen government's negotiating position and probably make other major banks reevaluate what their position is."

In addition to ruling unanimously against BofA, jurors found former Countrywide executive Rebecca Mairone liable for her role in the case.

Federal prosecutors in Los Angeles had been unable to construct a criminal fraud case against Countrywide executives, including co-founder and Chairman Angelo Mozilo.

But three years ago, the Securities and Exchange Commission obtained what it said was the biggest-ever civil penalty from a corporate boss when Mozilo agreed to pay $67.5 million to avoid going to trial on allegations of fraud and insider trading. The SEC also settled with two of Mozilo's top executives at Countrywide, which had been the nation's largest home lender.

Countrywide was acquired by BofA during the height of the housing crisis. Preet Bharara, the U.S. attorney in Manhattan, whose office sued the bank, said the lender's practices treated "quality control and underwriting as a joke."

"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," Bharara said in a statement. "That profit, however, was built on fraud, as the jury unanimously found."

Bharara's office, which filed the suit a year ago this week, is seeking $848 million in damages from the bank. Any penalties will be determined by a federal judge.
During the four-week trial, the bank contested the number of faulty loans and total losses at the heart of the case.
"The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," the bank said in a statement. "We will evaluate our options for appeal."

The suit highlighted Countrywide programs aimed at getting employees to churn out mortgages as fast as possible.

Countrywide's practices were some of the most egregious among subprime lenders, said Arthur Wilmarth Jr., a George Washington University law professor who consulted for the Financial Crisis Inquiry Commission.

"They along with Washington Mutual were [among] the worst of the banks," Wilmarth said.
The courtroom victory could strengthen the federal government's hand as it confronts other major Wall Street banks for conduct that contributed to the financial crisis.

The Justice Department and JPMorgan Chase & Co. have been working on a $13-billion settlement that would resolve a raft of federal and state probes stemming from faulty mortgage investments that fueled the financial crisis. A source familiar with the negotiations has said the deal could be announced as soon as this week.

In addition, the verdict may inspire the federal government to continue using a new weapon to fight Wall Street misdeeds.

After the financial crisis, prosecutors dusted off a 1980s law — the Financial Institutions Reform, Recovery and Enforcement Act — to pursue wrongdoing, said Jeffrey Manns, a law professor at George Washington University. Prosecutors used the law in the Countrywide case. The law was passed after the savings and loan crisis and allows the government to more easily prosecute for fraud that affects federally insured financial institutions.

"This is potentially a landmark case because it shows the government can successfully sue under this act," Manns said.

Manns said the Countrywide case could have fallout for other cases, such as the Justice Department lawsuit against ratings firm Standard & Poor's filed in Los Angeles. In that case, the government alleges that S&P helped inflate the housing bubble by assigning dubious ratings to mortgage investments chock-full of faulty loans.

"That case will now take place in the shadow of the Bank of America decision," Manns said.

andrew.tangel@latimes.com.
Times staff writer E. Scott Reckard contributed to this report.

The Cry of the True Republican

By JOHN G. TAFT

Five generations of Tafts have served our nation as unwaveringly stalwart Republicans, from Alphonso Taft, who served as attorney general in the late 19th century, through William Howard Taft, who not only was the only person to be both president of the United States and chief justice of the United States but also served as the chief civil administrator of the Philippines and secretary of war, to my cousin, Robert Taft, a two-term governor of Ohio. 

As I write, a photograph of my grandfather, Senator Robert Alphonso Taft, looks across at me from the wall of my office. He led the Republican Party in the United States Senate in the 1940s and early 1950s, ran for the Republican nomination for president three times and was known as “Mr. Republican.” If he were alive today, I can assure you he wouldn’t even recognize the modern Republican Party, which has repeatedly brought the United States of America to the edge of a fiscal cliff — seemingly with every intention of pushing us off the edge. 

Throughout my family’s more than 170-year legacy of public service, Republicans have represented the voice of fiscal conservatism. Republicans have been the adults in the room. Yet somehow the current generation of party activists has managed to do what no previous Republicans have been able to do — position the Democratic Party as the agents of fiscal responsibility. 

Speaking through the night, Senator Ted Cruz, with heavy-lidded, sleep-deprived eyes, conveyed not the libertarian element in Republican philosophy that advocates for smaller government and less intrusion into the personal lives of citizens, but a new, virulent strain of empty nihilism: “blow it up if we can’t get what we want.” 

This recent display of bomb-throwing obstructionism by Republicans in Congress evokes another painful, historically embarrassing chapter in the Republican Party — that of Senator Joseph McCarthy, chairman of the Senate Permanent Subcommittee on Investigations, whose anti-Communist crusade was allowed by Republican elders to expand unchecked, unnecessarily and unfairly tarnishing the reputations of thousands of people with “Red Scare” accusations of Communist affiliation. Finally Senator McCarthy was brought up short during the questioning of the United States Army’s chief counsel, Joseph N. Welch, who at one point demanded the senator’s attention, then said: “Until this moment, Senator, I think I never really gauged your cruelty or your recklessness.” He later added: “Have you no sense of decency, sir? At long last, have you left no sense of decency?” 

Watching the Republican Party use the full faith and credit of the United States to try to roll back Obamacare, watching its members threaten not to raise the debt limit — which Warren Buffett rightly called a “political weapon of mass destruction” — to repeal a tax on medical devices, I so wanted to ask a similar question: “Have you no sense of responsibility? At long last, have you left no sense of responsibility?” 

There is more than a passing similarity between Joseph McCarthy and Ted Cruz, between McCarthyism and the Tea Party movement. The Republican Party survived McCarthyism because, ultimately, its excesses caused it to burn out. And eventually party elders in the mold of my grandfather were able to realign the party with its brand promise: The Republican Party is (or should be) the Stewardship Party. The Republican brand is (or should be) about responsible behavior. The Republican party is (or should be) at long last, about decency. 

What a long way we have yet to go.

John G. Taft is the author of “Stewardship: Lessons Learned From the Lost Culture of Wall Street.”

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In Utah, tea party favorite Sen. Lee faces GOP backlash over government shutdown

Video: Speaking on the Senate floor before a vote to raise the debt ceiling and end the government shutdown last week, Sen. Mike Lee (R-Utah) made no apologies for trying to defund and delay Obamacare. "This is not over," he said.

By Philip Rucker, Published: October 22 

SALT LAKE CITY — When Mike Lee toppled longtime Republican Sen. Robert F. Bennett here in 2010, it was the tea party’s first big triumph. But now, after a 16-day government shutdown, it’s Lee who faces a revolt within his own party.

Utah, one of the most Republican states in the nation, has a long tradition of being represented by pragmatic, business-minded conservatives in the U.S. Senate. Lee broke that pattern by governing as an ideological firebrand — standing alongside Sen. Ted Cruz (R-Tex.) in the push for a shutdown in a failed bid to undermine President Obama’s health-care law.

As a result, Lee’s approval ratings in Utah have cratered, and prominent Republicans and local business executives are openly discussing the possibility of mounting a primary challenge against him. Top Republicans are also maneuvering to redesign the party’s nomination system in a way that would likely make it more difficult for Lee to win reelection in 2016. 

To hear grievances with Lee’s no-compromise, no-apology governing style, just head to the executive floor of Zions Bank, founded by Mormon settler Brigham Young. Bank President A. Scott Anderson, who raised money for Lee three years ago, sat in his corner office this week harboring second thoughts.

“I think people admire him for sticking to his guns and principles, but I think there are growing frustrations,” Anderson said. “If things are to happen, you can’t just stick to your principles. You have to make things work. . . . You’ve got to be practical.”

Spencer Zwick, a Utah native and national finance chairman for Mitt Romney’s 2012 presidential campaign, was more direct, calling Lee a “show horse” who “just wants to be a spectacle.”

“Business leaders that I talk to, many of whom supported him, would never support his reelection and in fact will work against him, myself included,” Zwick said.

If Lee is worried, he isn’t showing it. The freshman senator strongly defended the strategy of demanding that Democrats agree to defund the new health-care law, commonly known as Obamacare, or see the government shut down.

“This fight was worth fighting,” said Lee, 42, a lawyer whose father served as U.S. solicitor general during the Reagan administration. “The country wasn’t built by fighting only those battles where victory was certain.”

This battle has taken a toll on his popularity, however. A Brigham Young University survey conducted during the shutdown found that 57 percent of Utahans wanted Lee to be more willing to compromise. The senator’s approval rating dropped to 40 percent — down from 50 percent in June — with 51 percent disapproving.  At the same time, the online poll found, the vast majority of Utah residents identifying with the tea party still backed Lee.

Lee waved off the findings. “The only number I worry about is how many people are being hurt by Obamacare,” he said.

But Lee acknowledged that voters disapproved of the shutdown — especially in Utah, where the federal government is the largest employer. Shuttered national parks hurt the tourism industry and thousands of workers at military installations were furloughed.

“I understand that people in Utah — and people in America, for that matter — don’t like fighting in Washington,” Lee said. “But if we don’t have these fights, nothing changes.”

Lee came to office as part of the 2010 tea party wave, benefiting from Utah’s unique nomination system in which delegates chosen at neighborhood caucuses pick the party’s candidates at a state convention rather than in a primary.

Establishment figures in Utah have long loathed the convention system and are launching a well-funded effort to change it. A bipartisan group including former governor Michael O. Leavitt (R), a George W. Bush Cabinet official and close Romney adviser, has launched Count My Vote, a ballot initiative to overhaul Utah’s nominating process. The group has raised more than $500,000, most from major GOP donors.

A shift to an open primary could hurt Lee, who supports the convention system because his most passionate supporters are the conservative activists who become delegates. Rich McKeown, a longtime Leavitt aide and chairman of the effort, insisted that Count My Vote is designed not to target the senator, but rather to enlarge the voting population over the long term.

One beneficiary could be Thomas Wright, who stepped down this spring as chairman of the Utah Republican Party. Wright said he is considering running against Lee in 2016 because he has grown “exasperated” with the junior senator’s governing style.

“We can’t keep going on like this,” Wright said. “I want to work with people to get things done. I want to go be a leader and build bridges, not burn them down.”

Former state senator Dan Liljenquist and Josh Romney, one of Mitt’s sons, have also been mentioned as possible challengers, Utah Republicans say. Liljenquist enjoyed tea party backing when he ran unsuccessfully against Sen. Orrin G. Hatch (R) in last year’s primary.

Liljenquist criticized Lee’s handling of the shutdown. “I’m struggling to see what was gained from it for Utah,” he said. “An all-or-nothing approach makes people uncomfortable here.”

Although Cruz attracts more attention, Lee is one of the main intellectual forces behind the tea party in Washington. His Utah supporters say they’re proud that he is uncompromising.

“He’s done everything he said he was going to do — one of the rare politicians, I might add, who has kept all of his promises,” said David Kirkham, a tea party organizer who unsuccessfully challenged Utah Gov. Gary R. Herbert (R) last year.

But Lee has not cultivated the party’s business and establishment wings. Consider John Price, a businessman who once sat on the Republican National Committee and later served in Africa as an ambassador under Bush.

“With Mike Lee, no matter how many times I see him, he still doesn’t know who I am,” Price said. “He treats me like I don’t exist.”

Former Republican governor Jon Huntsman Jr., a 2012 presidential candidate who once employed Lee as counsel in the governor’s office, said Lee has bucked a trend of senators who work to grow this small state in a way that makes people proud.

“You don’t have ideological wack-jobs,” Huntsman said. “For all of its labeling as a red state, underneath it all Utah is a pretty pragmatic Western state, a just-get-it-done ethos.”

Many business leaders here said they wish Lee were more like Hatch, a conservative with a penchant for working across the aisle. In a statement, Hatch said the two “might not always agree,” but he did not criticize Lee. “There’s a unity of purpose amongst all Republicans that Obamacare is a dog of a law,” Hatch said.

In the budget debate, Lee championed repealing a medical-device tax that is part of the health-care law. So, one might imagine the senator would find support at Merit Medical, an international device manufacturer based in the Salt Lake City suburb of West Jordan.

In an interview at Merit’s headquarters, chief executive Fred Lampropoulos called the tax “egregious” and “unfair.” But he also said Lee’s crusade went too far.

“I’m an Army officer and I’m a businessman,” said Lampropoulos, a major GOP fundraiser. “Tactics and strategy are very important. You’ve got to pick your fights.”

Asked whether he would back Lee’s reelection, Lampropoulos leaned back in his leather chair and sat silent for about 20 seconds. “He has to convince me to vote for him again,” he said.

21 surprising effects of the government shutdown you haven’t heard about

• BY CAITLIN DEWEY

• October 2 at 9:00 am

The government shutdown will temporarily slash the staffs and operations of every “nonessential” federal program — which, as you can imagine, adds up to a whole lot of programs. There are the ones you know about, like the national parks and the panda cam. Then there’s everything else.

A right whale sounds in Cape Cod Bay. The advisory committee that protects whales and other marine mammals is one of many cutting back for the government shutdown. (Bill Greene/Boston Globe via Getty Images)

Here’s 21 effects of the shutdown you might not have heard about.

1) No one will oversee the program that makes sure your organic food is actually organic. That’s called the National Organic Standards Program, and its entire staff was furloughed. Also on the Department of Agriculture furlough list: the people who check that your meats, shellfish, produce, nuts and ginseng are labeled with their country of origin.

2) The Department of Homeland Security will stop civil liberties complaint lines, investigation and training. The training will affect employees on the state, local and federal level.

3) Wild horse and burro adoptions will stall. (Yes, wild horse and burro adoptions are a real thing.)

An employee of the wild horse and burro program shows off a mustang at the Nevada County Fair in 2009. (Bureau of Land Management)

4) A series of recreational trips and events for veterans, including an Antique Car Show and “Saloon Night,” were cancelled at the Armed Forces Retirement Home facilities in D.C. and Gulfport, Miss. The average AFRH resident is 82 years old.

5) New distilleries, breweries and wineries won’t open. Certain businesses that manufacture or distribute alcohol — and firearms, ammunition and tobacco products — require permits from the Alcohol and Tobacco Tax and Trade Bureau, which won’t accept new applications during the shutdown.

6) Space will go silent. The NASA social media staff behind @MarsCuriosity, a prolific and wildly popular account, have been furloughed. Nasa.gov, the site that gave you Karen Nyburg washing her hair in space, is also offline.

7) Businesses that operate on federally managed lands or public parks — such as privately owned campgrounds, concession stands and tour companies — will close.

8) Twenty-four American war cemeteries, including the Normandy American Cemetery at the site of the D-Day invasion, will close. The cemeteries are operated by the American Battle Monuments Commission and are where nearly 125,000 U.S. soldiers who died abroad during battles are interred.

9) The Dodd-Frank Wall Street Reform and Consumer Protection Act will be back-burnered. Dodd-Frank was designed to overhaul the financial regulatory system and provide more government oversight in the wake of the recession, but the U.S. Commodity Futures Trading Commission (CFTC) says it won’t work on the act’s implementation during the shutdown.

10) The Department of Agriculture will not operate its popular 25-year-old“Meat and Poultry Hotline.”

11) Most research activities at the National Institute of Standards and Technology and the National Oceanic and Atmospheric Administration will go dark. Those agencies study topics including long-term climate change. Real-time hurricane and flight-planning models will still be available.

12) Towns impacted by the recent flooding in Colorado could wait longerfor assistance.

13) No one from the Office of the Pardon Attorney will be available should President Obama want to issue a presidential pardon. The Justice Department adds that, in an emergency, someone from that office could be recalled from furlough.

14) The Department of Transportation will not drug test its employees.

15) Charges of on-the-job discrimination complaints will not be investigated. The U.S. Equal Employment Opportunity Commission, which oversees these investigations, will record the charges and hold them until after the shutdown.

16) Only 15 people will care for the White House and the Obama family, down from their usual 90.

The (empty) East Room of the White House. (Chuck Kennedy/White House)

17) No one will advise the government on “matters pertaining to the arts.” And there is, in fact, an entire commission devoted to just that type of advice.

18) E-Verify will go offline. More than 400,000 employers use the popular system to check their employees’ immigration and eligibility status.

19) The U.S. Coast Guard will delay licenses for both recreational and for-profit boaters.

20) The Office of Surface Mining Reclamation and Enforcement will stop monitoring  coal mines … except in an emergency or if someone complains.

21) Whales will be on their own. The scientific advisory committee that monitors their safety will shutter all operations, save for a few members, appointed by the president, who will watch for emergencies.