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The U.S. Second Circuit Court of Appeals has overturned a 1 point 27 billion dollar penalty imposed on Bank of America over the alleged misrepresentation of mortgage-backed securities sold by Countrywide Financial Corporation to the GSEs through a program known as the High Speed Swim Lane, commonly known as Hustle. The appellate court overturned the verdict because the proof was insufficient under federal fraud statutes to hold the bank liable in connection with Countrywide's Hustle program.
The court's ruling stated that the government needed to show false or misleading statements made with fraudulent intent, but instead, quote, Critically, the government presented no proof at trial that any quality guarantee was made with fraudulent intent at the time of contract execution. Nor did it offer evidence of any other representations, suggestions, or promises—separate from and post-dating execution of the initial contracts—that were made with fraudulent intent to induce the GSEs to purchase loans. Close quote.
The Agency First-Time Buyer Mortgage Risk Index shot up to 15 point 8 percent in April, a series high and an increase of 0 point 6 percentage points over-the-year, according to AEI International Center on Housing Risk. Risk layering is largely responsible for the increased riskiness of the first-time buyer mortgages; 70 percent of first-time buyer mortgages in April 2016 had a combined loan-to-value ratio of 95 percent or higher and 97 percent had a 30-year term.
