Bank of America Corp. was accused of doing the “hustle” on Wednesday in a complaint filed by U.S. District Attorney Preet Bharara.
But this isn’t a 1970s disco dance – it’s a nickname for the High-Speed Swim Lane – and it’s a tactic a company now owned by Bank of America allegedly used to sell bad home loans to Fannie Mae and Freddie Mac. When the mortgages in question defaulted, the U.S. government says losses climbed to more than $1-billion (U.S.).
The hustle allegedly originated with Countrywide Financial Corp. in 2007, about a year before Bank of America bought it through a subsidiary (but kept the Countrywide name).
Bank of America had no immediate comment.
Here’s how the High-Speed Swim Lane went:
It allegedly started with Countrywide – once the biggest mortgage-lending shop in the U.S. with $490-billion in loans in 2005, according to the complaint. While the housing market swelled throughout the mid-2000s, Countrywide made a lot of subprime loans. Fannie Mae and Freddie Mac were the two biggest purchasers of its resold mortgages.
These government-sponsored enterprises (GSEs), Fannie and Freddie, were in big trouble when the housing bubble burst in 2006 and millions of poor-quality loans began to rain down on them. The U.S. government stepped in with more than $180-billion in aid.
But while things were going bad though 2007, and Fannie and Freddie began to reconsider their loan buying requirements, Mr. Bharara alleges that Countrywide invented the hustle to push the process along faster.
As Fannie and Freddie tried to stomp out risk, “Countrywide eliminated every significant checkpoint on loan quality...” and, according to internal Countrywide documents the DA obtained, took away “toll gates” that were slowing things down in order to assure loan quality.
Who were the underwriters assigned this work? According to the complaint they were “loan processors who were previously considered unqualified to answer borrower questions.” Countrywide also took away their instructional “job aids” or check lists – anything to speed up the swim lane, it is alleged.
Mr. Bharara notes that BofA made public comments that it would “clean up” the unsavoury parts of Countrywide back when it acquired it, and that these issues had been factored in the price of the acquisition.
With files from The Associated Press