I remember those days so well. They are burned into my memory. I remember Bank of America taking over Countrywide just as anyone who was paying attention could see that the country and the world was in for a calamitous downturn in housing. A downturn from which much of the world still has not recovered. I remember wondering why B of A would expose itself to all the nastiness which was embedded in Countrywide. Why would such a large and powerful bank, presumably full of very sharp risk management people pick up this ball of toxicity? Surely they saw opportunity where I did not.
Turns out they only thought they saw opportunity.
However, Bank of America also knew that it was Bank of America which meant that even if they made a colossal mistake they could probably get away with it. How true that was.
At one point, the head of underwriting at Countrywide wrote an alarmed e-mail, with a list of questions from employees, such as, does “the request to move loans mean we no longer care about quality?”
The executive in charge of the decision, Rebecca Mairone, replied, “So – it sounds like it may work. Is that what I am hearing?”
To federal prosecutors—and to a jury in Manhattan—the hustle sounded like fraud. And in 2013, Bank of America, which had by then taken over Countrywide, was found liable for fraud and later ordered to pay a $1.27 billion judgment to the government.
But this week, the 2nd U.S. Circuit Court of Appeals looked at that judgment and asked this question: If a entity (in this case, a bank) enters into a contract pure of heart and only deceives its partners afterward, is that fraud?
The three-judge panel’s answer was no. Bank of America is no longer required to pay the judgment.