As we reported earlier last week, the trial has begun against Bank of America regarding allegations of impropriety surrounding the underwriting and approval processes for sub-prime loans – the processes that contributed to the massive housing market meltdown. On Thursday of last week, a former Bank of America executive testified that the practices in question were actually occuring long before most regulators realized. This whistleblower lawsuit against the bank was commenced in order to alert federal authorities as to the nature of these procedures – known colloquially as “the hustle.” The relator, Edward O’Donnell, was formerly employed in the sub-prime lending division of Bank of America’s troubled subsidiary Countrywide and testified as to the company’s routine approval of sub-prime loans not meeting lending standards. The hustle, also known as the High Speed Swim Lane (HSSL), was eventually realized by regulators and rests as the pivotal issue in the high-stakes trial currently taking place.
Background of the HSSL – or, the “Hustle”
Nearly one year ago, the Department of Justice filed its complaint against Bank of America and Countrywide alleging alarming instances of fraud and inadequate underwriting for sub-prime loans designed for purchase by government-backed Fannie Mae and Freddie Mac. O’Donnell’s whistleblower lawsuit was filed shortly thereafter and the DOJ agreed to intervene and prosecute the action on his behalf. The insider information provided by O’Donnell gave insight to the HSSL process and Bank of America’s scheme to funnel as many high-risk, likely-to-default loans to the government as possible while systematically refusing to re-purchase deficient loans according to the terms of its contract with the government.
At some point, according O’Donnell, Bank of America and Countrywide decided to curtail part of this plan in favor of selling higher-quality, less-risky loans to the government and implemented a new practice to speed up the approval procedure – known as HSSL. The banks implemented an automatic review process and eliminated the need for a living, breathing underwriters to review applications. Reported incomes went unverified and the automated system depended, in large part, on customer inputs with minimal checks for accuracy. Around the same time, loan employees were rewarded bonuses based on the number of loans sent through without any regard to the quality of the applicant.
Whistleblower Steps in to Help Stop Lending Fraud
At the time of his lawsuit, O’Donnell met with two high-ranking officials within the bank’s infrastructure to explain the high-risk nature of this automated process. After this discussion, he was permitted to oversee the “underwriting” of questionable home loans, but only if the loans were already being processed. In response to the staggering number of defects and problems with loan applications, O’Donnell opted to commence a whistleblower lawsuit.
Never Be Afraid to Ask Questions
In this case, O’Donnell began to sense things were amiss in the underwriting and approval procedures of his employer and began to ask questions. Only then did he come to realize the widespread fraud and deceit occurring on a daily basis – affecting hundreds of millions of taxpayer dollars.
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