On Wednesday, after the Obama campaign borrowed $15 million from Bank of America last month, the Obama administration filed suit against the company. The suit is for at least $1 billion in damages for “misrepresenting the quality of its loans” sold to Fannie Mae and Freddie Mac, which were later bailed out by U.S. taxpayers.
According to the Wall Street Journal, “the filing represents a novel effort by the government to defray costs tied to the 2008 bailout of Fannie and Freddie, and potentially opens a new front against a banking industry already dealing with hefty legal costs.”
In February, the government sued Bank of America under the False Claims Act and exacted a $1 billion settlement from the bank. The government has received, according to the Journal, $490 million in similar cases from three other banks.
The suit alleges that Bank of America knew before it acquired Countrywide that Countrywide had a program called “the Hustle,” which tried to speed up how loans were processed. Many of those loans were shoddy, and the suit alleges Bank of America “falsely continued to claim the loans qualified for insurance from Fannie Mae and Freddie Mac.”
According to the Journal, “the government is suing Bank of America under the Federal False Claims Act, which has become a popular tool for prosecutors seeking to hold banks accountable for alleged mortgage misdeeds and calls for triple damages when the government can show taxpayers were ripped off.”
Taxpayers have spent nearly $142 billion bailing out government agencies that back mortgages. Last year, the Federal Housing Finance Agency, which regulates these agencies, sued 18 major banks, according to the Journal, and these banks have “set aside $76 billion in mortgage-related legal costs since 2008.”
In 2009, Bank of America was Fannie Mae’s top client and, according to the agency, accounted for 20% of all loans the agency bought or backed in 2009, but “Fannie Mae stopped buying or guaranteeing new loans delivered by Bank of America this past February.”