The mortgage industry has been buzzing this week about the Second Circuit Court of Appeals’ reversal of the $1.27 billion penalty against Bank of America over Countrywide’s High Speed Swim Lane (HSSL) mortgage program, also known as the “Hustle” program.
The appeals court also threw out a $1 million fine previously imposed on former Countrywide executive Rebecca Mairone, who to this point has been the only individual penalized by the government for an alleged role in the financial crisis.
The government's lawsuit against Bank of America was a whistleblower suit originated from former Countrywide executive Edward O'Donnell, who collected $57 million for filing the whistleblower suit. O’Donnell will get to keep his whistleblower reward despite the reversal of the $1.27 billion penalty against the bank, the Wall Street Journal reported on Wednesday.
O’Donnell’s whistleblower lawsuit, which was filed under the False Claims Act, accused Countrywide of misrepresenting the mortgage-backed securities it sold to Fannie Mae and Freddie Mac through the Hustle program. O'Donnell filed the suit in 2012 when he learned that Bank of America was in talks with the Justice Department over a possible settlement over Hustle. In August 2013, the U.S. Department of Justice then sued Bank of America (which had acquired Countrywide in 2008) over Hustle, alleging that the program emphasized speed over quality of the loans sold, and staff members were rewarded according to sales volume. In October 2013, a jury found Bank of America liable for selling toxic securities to the GSEs, and in July 2014, a judge issued a $1.27 billion penalty against Bank of America and a $1 million fine against Mairone.
Both of those penalties were overturned on Monday, May 23. Despite the overturning of those penalties, O’Donnell is keeping the $57 million whistleblower reward because of a second lawsuit he filed in June 2014 against a separate division of Countrywide for the sales of toxic mortgage loans to the GSEs. Bank of America agreed to pay $350 million to settle that claim as part of a much larger settlement—a then-record $16.65 billion in August 2014.
According to the Journal, "The Justice Department set aside money from that settlement for Mr. O’Donnell and three other whistleblowers who had raised different allegations about programs at the bank and Countrywide Financial Corp., the mortgage giant that Bank of America acquired at the height of the financial crisis. Mr. O’Donnell and two of the other whistleblowers were employees of Countrywide."
O'Donnell's attorney, David Wasinger, did not immediately respond to a request for comment from MReport.