Bank of America was treated too leniently in settlement talks over mortgage fraud at the company, robbing the US taxpayer of billions of dollars of potential compensation, according to a damning report.
BofA and Countrywide Financial, the mortgage lender it acquired in 2008, were among the biggest providers of sub-prime loans in the run-up to the financial crisis, but government-run finance giant Freddie Mac failed to extract more than $1.35bn in compensation for the dodgy loans it purchased from the pair.
The settlement between BofA and Freddie Mac last December was signed over the objection of a senior official at Freddie Mac's regulator, the Federal Housing Finance Agency, and a report by its inspector-general said it should never have gone ahead.
Freddie Mac, like its sister company Fannie Mae, was a big buyer of sub-prime mortgages during the credit boom, and the collapsing value of those loans took the company to the brink of bankruptcy. Both Freddie and Fannie were nationalised by the US one week before Lehman Brothers collapsed in 2008, and have absorbed $160bn of taxpayer money to plug losses since then.
BofA is struggling to get a handle on the size of its liabilities for faulty mortgage lending, and it still faces numerous multi-billion-dollar lawsuits.
The December settlement resolved claims over 787,000 loans, which Freddie Mac alleged failed to meet the promised underwriting standards or which were the result of out-and-out fraud by borrowers or brokers. The FHFA said perhaps 50 per cent more loans should have been included.
Freddie Mac went easy on BofA, the inspector-general concluded, because it did not want to jeopardise their business relationship.Reuse content