Government crusade against mortgage lenders

Loan (Photo credit: Philip Taylor PT)

Washington, Oct.25, hot stock picks .- Federal prosecutors Wednesday accused Bank of America of selling Fannie Mae and Freddie Mac thousands of shoddy mortgages that caused more than $ 1billion in losses, the latest in a string of government cases against big banks for sins of the housing crisis.
The recent surge of government charges and settlements is aimed at holding the nation’s biggest lenders accountable for an array of alleged wrongdoing — including selling bad loans to investors or federal agencies, using fraudulent documents to foreclose on struggling homeowners and charging blacks and other minorities higher rates than whites. On Wednesday, the Department of Justice filed a civil lawsuit alleging that Bank of America stripped safeguards designed to catch mortgage fraud and then peddled the loans to government-backed Fannie and Freddie in what officials called a “spectacularly brazen” scheme.

This case as well as dozens of others brought within the past 12 months or so represent the culmination of the government’s labors to punish banks for the housing crisis that sent the economy into a tailspin four years ago. This reckoning has generated tens of billions of dollars in fines — though no top executives in handcuffs — and has rarely forced the banks to admit any culpability.

“This is an act of tiny margins relative to the size of the organizations and relative to the fraud committed,” said William K. Black, a former bank regulator who teaches economics and law at the University of Missouri. “Prosecutors can’t argue that these cases will serve as a deterrence when there have been no criminal indictments of senior executives.”

But lenders argue that the mounting cases, plus a host of new mortgage regulations coming into effect next year, will make it harder to issue loans, leaving less credit available for the still wobbly housing market.

Addressing the latest charges, Bank of America spokesman Lawrence Grayson said, “At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn.”

Bank of America “acted responsibly to resolve legacy mortgage matters,” Grayson said. “The claim that we failed to repurchase loans from Fannie Mae is simply false.”  ... Continue to read.

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