U.S. Department of Justice Sues Countrywide and Bank of America

Bank of America and Countrywide find themselves in the crosshairs of the U.S. Department of Justice, which recently filed a lawsuit involving toxic mortgage loans, as Grant McCool and Jonathan Stempel report for Reuters.

A toxic asset, generally defined, is an asset whose value has declined significantly.

Bank of America, at the behest of parent company Countrywide, is said to have dumped those toxic mortgage loans on Fannie Mae and Freddie Mac, the government-sponsored mortgage companies. This, in turn, caused taxpayers more than $1 billion.

What makes this case particularly interesting is that individual people, as opposed to just the companies themselves, are also in the fed's crosshairs.

This makes sense, given the allegations, because executives and employees are accused of actively getting rid of safeguards against bad loans, which too often end in home foreclosure, in an effort to process those toxic loans efficiently. (And, presumably, make more money.)

Reuters quotes a lawyer for Bank of America: "[The complaint is] not like anything we have seen before." The lawyer's statement seems to allude that the accusations against Bank of America and Countrywide overreach. While the Reuters story does not explain why, perhaps it's because the feds are also targeting individual people under the False Claims Act.

Civil Fines and Triple Damages

Many consumers might view the U.S. Department of Justice's lawsuit as a step in the right direction. As McCool and Stempel report, the feds are seeking civil fines and triple damages under the False Claims Act, which has been used more and more in recent years.

Under the False Claims Act, federal authorities can hold both individuals and companies responsible for fraud perpetrated against government programs like Fannie Mae and Freddie Mac.

Indeed, one online reader commented: "Stick it to them, and throw them in jail to boot!"

While it's unlikely that Bank of America or Countrywide employees will be going to jail anytime soon, a win for the U.S. Department of Justice might have an impact on some personal bank accounts.

Source: Bank of America employees could face fraud charges, prosecutor says