B of A Says It Shouldn’t Pay Penalties in U.S. Countrywide Case

Bank of America Corp. told a judge it shouldn’t pay any penalty in a U.S. lawsuit accusing it of selling defective loans to Fannie Mae and Freddie Mac.

The government argued earlier that, given the egregiousness of the fraud, the Charlotte, N.C.-based bank should pay the maximum penalty of $863 million. The bank, in its filing yesterday in federal court in Manhattan, said it should pay $1.1 million at the most.

Bank of America’s Countrywide unit was found liable by a federal jury last month for selling the government-sponsored entities thousands of defective loans in the first mortgage fraud case brought by the U.S. to go to trial.

Bank of America argues the U.S. can’t prove that the scheme to misrepresent the quality of its High Speed Swim Lane or “HSSL” loans and not other factors were a proximate cause to any pecuniary loss to Fannie Mae and Freddie Mac.

“The government cannot show that any loss suffered by Fannie and Freddie in connection with the HSSL loans proximately resulted from a misrepresentation by Countrywide about the loans, as opposed to other factors such as the worldwide mortgage crisis, which had an enormous effect on mortgage loans purchased by Fannie and Freddie during the relevant period,” the bank said in the filing.

The case, brought under the Financial Institution Reform, Recovery and Enforcement Act of 1989 or FIRREA, has been used by Manhattan U.S. attorney Preet Bharara’s office at least six times. The office has used the statute and another law to obtain almost $500 million in mortgage fraud recoveries. Bank of America said that the government’s calculated number of faulty loans of more than 28,882 is also incorrect and told U.S. District Court Judge Jed Rakoff, who is presiding over the case, that the U.S. isn’t entitled to a penalty hearing.