From the New York website: Bank of America is off the hook for a $1.27 billion fraud penalty for its Countrywide Financial division’s role in selling toxic mortgages to Fannie Mae and Freddie Mac in the buildup to the 2008 financial crisis.
On Monday, a Manhattan federal appeals court overturned a 2013 jury verdict that found Countrywide, which Bank of America acquired in 2008, fraudulently dumped the shoddy mortgages on the government-sponsored entities despite having promised to sell only investment-quality loans.
But the three-judge appeals court panel found that Countrywide did not engage in fraud because the sale of the toxic mortgages occurred after the contract on the deal was signed – with Judge Richard Wesley noting that “[a] party claiming fraud must prove fraudulent intent at the time on contract execution,” according to the New York Post.
Instead, Wesley said Countrywide’s substitution of the promised high-quality mortgages for shoddy loans was more akin to breach of contract than fraud, and that prosecutors would have to prove that Countrywide executives made the switch “with contemporaneous fraudulent intent.”
The appeals court also overturned a $1 million civil penalty on former Countrywide executive Rebecca Mairone, who was told by subordinates that the loans being sold to Fannie Mae and Freddie Mac fell short of their standards. [NYP] – Rey Mashayekhi