The word "hustle" means to hurry something or someone along or to obtain in a nefarious way. Then, there is the dance popularised during the disco era of the 1970s. Now add to the list of definitions a process for reckless lending in the run-up to the financial crisis. In a lawsuit filed yesterday, the Department of Justice alleged that Countrywide and its parent Bank of America engaged in a programme, dubbed the "hustle," that systemically eliminated traditional quality controls and concealed defects in home loans sold to Fannie Mae and Freddie Mac. Damages for more than $1-billion (U.S.) in losses at the two groups, which are in government conservatorship and have received $183-billion in funding from the U.S. Treasury, are being sought.
The level of damages pursued are not necessarily a gauge of what a company ultimately might pay in a settlement. And BofA has rejected the claims, pointing to payments it has already made and existing settlements that might overlap. Last year, the bank settled with Freddie for all repurchase claims and with Fannie for a portion of them. As of the third quarter, BofA had paid out $14-billion to repurchase or compensate private investors, bond insurers and Fannie and Freddie for losses in troubled loans from the past decade. It has set aside an additional $16-billion in reserves. Prior to yesterday's suit, BofA had estimated up to $6-billion in claims beyond those reserves.
Investors shrugged at the latest lawsuit, and BofA shares ended down just 0.5 per cent at $9 yesterday. They have rallied nearly 40 per cent over the past year. Still, the suit is the latest reminder that even as U.S. banks at the centre of the financial crisis have made strides to repair their businesses and balance sheets, the shadow of the mortgage boom remains.