The penalty handed down by Judge Jed S. Rakoff of the Federal District Court in Manhattan on Wednesday comes after a jury in October found Bank of America liable for selling the questionable loans to the government-sponsored entities in the run-up to the financial crisis.
The jury also found a top manager at Bank of America’s Countrywide Financial unit liable for the sale of the loans, which were originated as part of a program nicknamed the “hustle,” which linked bonuses to how fast bankers could originate loans.
The judge also fined the former executive, Rebecca S. Mairone, $1 million, for her role in the scheme.
Known for having strong views on financial fraud, Judge Rakoff issued a sharp rebuke of the bank’s misconduct.
“It was from start to finish the vehicle for a brazen fraud by the defendants,” he wrote in a 19-page opinion, “driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole.”
The penalty, which the bank has been ordered to pay in full by Sept. 2, is another steep price to be paid by Bank of America as it tries to put its legal troubles behind it. It is likely to complicate settlement talks between the bank and the Justice Department to avoid another lawsuit over the sale of mortgage securities that led to billions of dollars in losses to investors.
In determining the penalty, Judge Rakoff said he did not calculate the amount based on how much Fannie Mae and Freddie lost from the mortgages. But rather on how much they paid for mortgages that prosecutors proved to the jury were defective – about 42 percent of a total of 17,611 loans.
Ms. Mairone, the judge ruled, can pay the fine in installments over a period of time. That decision, he explained. reflected a concern that the government’s demand for a lump sum $1.2 million penalty “would strain her resources to the limit.”
Preet Bharara, the United States attorney in Manhattan who filed the case, cheered Judge Rakoff’s ruling.
“Today, Judge Rakoff imposed stiff penalties in a case brought by this office to punish and deter the fraudulent and reckless lending activities of a financial institution leading up to the financial crisis in 2008,” Mr. Bharara said in a statement.
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