Jury Rules against Countrywide, in Whistleblower Suit

A federal grand jury found the former Countrywide Financial and one of its executives guilty of mortgage fraud on Wednesday in a whistle-blower generated civil suit.  The company, acquired by Bank of America in 2008, was found liable for actions that resulted in the purchase of thousands of defective loans by government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.  Former Countrywide executive Rebecca Mairone was also found liable in the case.

Mairone had been chief operating officer of Countrywide's Full Spectrum Lending Division which was responsible for operating a program, implemented in 2007, called High-Speed Swim Lane, and nicknamed "the Hustle."  The program was designed to speed mortgage processing but federal prosecutors said it lacked quality checkpoints and processes such as income verification.  The loans were then sold to or guaranteed by the GSE's under representations that they met the companies underwriting guidelines. Mairone was the only Countrywide official named in the suit.

The government maintained that the 28,800 loans underwritten through the Hustle program were processed in as few as 10 days rather than up to 60 as in most programs.  The loans that ultimately defaulted cost the GSEs $131 million and they allege that Countrywide earned at least $165 million under the program.  

A whistleblower brought the original suit against Mairone and her former employer; it was then joined by the Department of Justice.  Edward O'Donnell, also a former executive at the company, said he had complained repeatedly about loan quality standards used in the program.  He could be awarded as much $1.6 million for his role in the legal action.

Countrywide's defense attorney Brendon Sullivan told jurors that only about 11,000 loans were processed through the program which only lasted a few months and that there was no fraud involved.  

Judge Jed Rakoff told attorneys he would determine the civil penalties in the case.  The Justice Department has requested payment of either that gross losses suffered by the GSEs, $848 million, or alternatively the estimated net loss of $131 million.  

Attorneys for both Mairone and Bank of America which is responsible for Countrywide's liabilities indicated they may appeal the decision.