U.S. District Judge Jed Rakoff, who presided over the trial, told lawyers he’ll determine the amount of any civil penalty at a later date. Assistant U.S. Attorney Pierre Armand asked the judge to impose a penalty of as much as $848 million, representing the gross losses to Fannie Mae (FNMA) and Freddie Mac. Armand said alternatively, Rakoff could fine Countrywide about $131 million, the estimated net losses to the two entities.
Countrywide, based in Calabasas, California, was once the biggest U.S. residential home lender, originating or purchasing about $1.4 trillion in mortgages from 2005 to 2007.
The bulk of them were sold to investors as mortgage-backed securities. Bank of America acquired Countrywide in 2008.
Bank of America fell 31 cents, or 2 percent, yesterday to $14.21 in New York Stock Exchange trading. The shares fell 0.3 percent today.
Following a four-week trial, the jury of six women and four men deliberated about five hours yesterday. After the verdict, a female juror said she and her colleagues on the panel agreed with the government’s view that Countrywide’s Full Spectrum Lending unit had shunted substandard loans to Fannie Mae and Freddie Mac (FMCC) under the HSSL program.
“I knew something about what was going on in the mortgage debacle but it was certainly interesting to see how this happened first-hand,” said the woman, who declined to be identified. She is a freelance writer who lives on Manhattan’s Upper West Side.
The juror cited the testimony of John Boland, a former Countrywide employee who said some loan specialists were told they wouldn’t be allowed to go home for the night unless they approved a loan. Jurors asked to re-hear Boland’s videotape deposition just minutes before announcing their verdict.
Boland testified he had complained to Countrywide superiors repeatedly about the loan approval process under HSSL and an earlier program. He said it was “mind blowing” to learn that two employees who he criticized “lost their authority” regarding loans because that hadn’t happened before.
“Boland’s testimony was shocking,” the juror said. “Those employees were told to do ‘30 in 30,’ or 30 loans in 30 days. I will say in my opinion the bank and these employees were just passing off unsatisfactory loans as prime loans and Fannie and Freddie got stuck.”
The juror also said she and her fellow panelists weren’t convinced by the lender’s argument that a computer-generated underwriting process called “CLUES” was a satisfactory method for evaluating the quality of loans.
“The defense seemed to be saying that with CLUES, the loan specialists didn’t need underwriters,” the juror said. “But we decided that there was no way that any machine could do that. You needed a human.”
Countrywide earned at least $165 million using HSSL, allowing the company to maintain revenue in a “cratering” market for subprime mortgages, prosecutors told the jury in closing arguments. Government-sponsored enterprises, or GSEs, such as Fannie Mae and Freddie Mac bought single-family mortgages from lenders.
The U.S. last year joined the whistle-blower action against Bank of America filed by former Countrywide executive Edward O’Donnell.
O’Donnell, who came to court yesterday morning after jurors began their deliberations, declined to comment after the verdict. Under whistle-blower laws, O’Donnell testified he could collect as much as $1.6 million of any monetary damages awarded to the U.S.
Under the HSSL program, prosecutors said, the time in which more than 28,800 loans were processed was reduced to as little as 10 days from 60 days and safeguards were lifted to boost the number of loans the lender completed and sold to GSEs. Brendan Sullivan, a lawyer for Countrywide, said just 11,000 HSSL loans were sold to Fannie Mae and Freddie Mac and quality wasn’t compromised.
The case, brought under the Financial Institution Reform, Recovery and Enforcement Act of 1989 or FIRREA, has been used by Bharara’s office at least six times. The office has used the statute and another law to obtain almost $500 million in mortgage fraud recoveries.
The case is U.S. v. Countrywide Financial Corp., 12-cv-01422, U.S. District Court, Southern District of New York (Manhattan).