Bank of America hit with billion dollar lawsuit alleging fraud - FOX 10 News | myfoxphoenix.com

Bank of America hit with billion dollar lawsuit alleging fraud

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PHOENIX -

Saying he wants to send a clear message that reckless lending practices will not be tolerated, a federal prosecutor files a billion dollar lawsuit, accusing Bank of America and Countrywide of massive mortgage fraud at the height of the housing crisis.

Prosecutors say Countrywide started the alleged fraudulent loan program, but they say Bank of America continued it after buying the company.

Prosecutors say the bank made disastrously bad loans and stuck taxpayers with the bill.

In a billion dollar lawsuit, a U.S. attorney calls Bank of America's alleged loan fraud "spectacularly brazen."

"Certainly it's an unfortunate situation, I think we're all aware there were some inappropriate behaviors going on at the height of the housing crisis," says Daniel Romm, Department of Housing spokesperson.

According to the lawsuit, the bank called the loan "program hustle." Prosecutors say mortgage applications were being processed so quickly they didn't check to see if people could actually afford them. Employees are said to have gotten bonuses based on how many applications they pushed through.

Prosecutors say the bank sold the bad loans to Fannie Mae and Freddie Mac, who were left to pay the loans when they defaulted.

The U.S. attorney says it led to $1-billion in losses and countless foreclosures.

"Anecdotally we've heard stories of it taking place but it would be really hard to say," says Romm.

Romm says it's hard to tell if the alleged fraud was happening in Arizona. But he says our state, one of the five states hit the hardest, is still trying to recover from the housing crisis.

"We're getting better, things are improving. Are we where we want to be? No, but we're working our way out of that."

The billion dollar lawsuit is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac.

"I hope they do get repaid if it happens to be true but I think it's important for the justice system to play out and see what happens."

Prosecutors say a 2008 review showed 37-percent of the so-called "hustle loans" defaulted -- far above the standard defect rate of 4 to 5 percent.

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