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Change Of Heart: DOJ Wants $2B Instead Of $864M In BofA Fraud Case

This article is more than 10 years old.

The Department of Justice is on a billion-dollar mission.

After winning a mortgage case last year against Bank of America the DoJ asked for $864 million from the bank. Three months later, it's upping its ask to $2.1 billion.

That's quite an increase and one that may be catching Bank of America by surprise.

Why the change of heart by the DoJ? Initially, it was basing its price on Fannie Mae and Freddie Mac losses that came after buying bad loans from BofA's Countrywide. Now it says the penalty should represent the gross revenue the BofA and Countrywide collected from those shady sales--an amount the government says is $2.1 billion.

The case was brought by US Attorney for the Southern District of New York, Preet Bharara, who claimed the bank’s Countrywide unit created a program dubbed the “Hustle” to push through defective home loans then sold them to Fannie Mae and Freddie Mac.

In October a jury found BofA liable for defrauding Fannie Mae and Freddie Mac when its Countrywide unit sold it bad mortgages. The jury also found former Countrywide executive, Rebecca Mairone, liable on the one fraud charge.

That verdict was a win for the US government as it was one of the few cases from the financial crisis that it took to trial.

“In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow.  That profit, however, was built on fraud, as the jury unanimously found,” US Attorney Preet Bharara said in a statement at the time.

For it's part, BofA was planning an appeal saying, "The bank said in a statement, “The jury’s decision concerned a single Countrywide program that lasted several months and ended before Bank of America’s acquisition of the company. We will evaluate our options for appeal.”

Overall, it's an usual approach for the DOJ to base a penalty on the gross gains rather than losses. What's likely at play is the government's appetite for billion dollar Wall Street deals.

Remember when billion dollar settlements felt big? Since around 2012 the number of billion dollar penalties and settlements have grown. They seem to be the norm these days.

JPMorgan Chase paid the largest penalty dealt to a single company with its $13 billion settlement to resolve allegations that it sold bad mortgage securities. Just a couple of months later the bank agreed to pay more than $2 billion to resolve criminal charges that it failed to alert the government about Madoff’s Ponzi scheme.

Back in December 2012, HSBC agreed to settle money laundering charges for a record $1.9 billion. That was the biggest banking settlement at the time.

Just a few days later UBS said it would hand over $1.5 billion and plead to a single count of wire fraud in connection with manipulation of benchmark interest rates as a result of the Libor scandal.

To put the figures in context, consider that since 2010 the Street’s six biggest banks by assets have shelled out $85.8 billion in settlements tied to the credit and mortgage crisis.  That amounts to $40 million every day since March 2008 when JPMorgan Chase bought Bear Stearns.

Looks like 2014 is going to be another year of billion dollar settlements.