(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Reynolds Holding
NEW YORK, Sept 24 (Reuters Breakingviews) - Bank of
America's (BAC.N) mortgage fraud trial could provide some
financial crisis accountability. The bank, like its peers, has
paid hefty settlements without admitting fault. Now it must
answer to a U.S. jury for selling Fannie Mae FNMA.OB and
Freddie Mac FMCC.OB dodgy loans. BofA could beat the charges,
but it may finally have to come clean about its Countrywide
unit's role in the 2008 meltdown.
The Justice Department says Countrywide, which BofA acquired
that year, was recklessly speeding mortgage approvals in 2007
while assuring Fannie and Freddie it was tightening standards.
As a result, the government-sponsored enterprises were duped
into buying loans that defaulted to the tune of $850 million,
prosecutors claim. The bank says it was working in good faith to
streamline a prime-loan process after the subprime market
collapsed, and it tried to fix glitches while keeping Fannie and
Lawsuits like this usually settle, sometimes for billions of
dollars. But the payouts are often viewed as a cost of doing
business rather than an effective deterrent, and the facts
behind the transactions rarely emerge.
That has prompted federal judges like Jed Rakoff to require
admissions from the accused. After he blocked a $285 million
Citigroup settlement with the Securities and Exchange Commission
because the bank refused to admit or deny wrongdoing, the SEC
has tried to extract confessions of guilt in more cases.
Even the watchdog's new policy has drawbacks. JPMorgan's
(JPM.N) $1 billion "London Whale" settlement with the SEC and
others, for instance, included admissions. But they were
narrowly focused on record-keeping violations and skirted
broader allegations like fraud.
Trials, on the other hand, air all the facts and reach clear
resolutions. The public will probably never learn what really
happened, for example, with Citigroup's (C.N) failed
collateralized debt obligation. But under Rakoff's gaze the
story of Countrywide's mortgages may now be told in full.
That's useful for lawmakers and regulators still grappling
with the financial crisis. Determining whether the lender made
honest mistakes or deliberately foisted bad loans on Fannie and
Freddie could help define better rules and even avoid another
crisis. Jury trials are a costly way to find answers. But they
can be worth it.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Bank of America is scheduled to go to trial on Sept. 24
over charges that its Countrywide unit defrauded Fannie Mae and
Freddie Mac by selling them defective mortgages. The civil
lawsuit filed by the U.S. Justice Department in 2012 alleges
that the bank caused the two federally-backed organizations more
than $1 billion in losses.
- It would be the government's first trial against a major
bank involving mortgages linked to the financial crisis. It
would also be one of the few times prosecutors have sued banks
under the Financial Institutions Reform, Recovery and
Enforcement Act (FIRREA), a 1989 law enacted to protect
financial institutions from wrongdoing by others.
- Starting with jury selection, the proceedings are expected
to last about five weeks. U.S. District Judge Jed Rakoff is
presiding over the case in New York.
- Reuters: Bank of America goes to trial over U.S. mortgage
fraud charges [ID:nL2N0HF21O]
Dogging it [ID:nL2N0GM0K9]
Regulator rising [ID:nL2N0GG17R]
- For previous columns by the author, Reuters customers can
click on [HOLDING/]
(Editing by Richard Beales and Emily Plucinak)
Keywords: BREAKINGVIEWS BOFA/MORTGAGE TRIAL
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