DS News

54 BANK OF AMERICA'S 'HUSTLE' WHISTLEBLOWER RETAINS REWARD e mortgage industry has been buzzing 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. e 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. e 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. 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 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, "e Justice Department set aside money from that settlement for 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. 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 DS News. OCC FREES WELLS FARGO FROM SERVICING RESTRICTIONS e Office of the Comptroller of the Currency (OCC) announced that it has terminated the mortgage servicing-related consent order against Wells Fargo. At the same time, the OCC issued a civil money penalty of $70 million to the bank for previous violations of the order. e consent order against Wells Fargo was terminated by the OCC after it was determined that the bank is now in compliance with the order. Wells Fargo was one of 12 mortgage servicers penalized by the OCC and the Office of rift Supervision (OTS) in April 2011 for deficient mortgage servicing and foreclosure practices. e consent orders handed down against the servicers at that time were based on findings by an examiner during an interagency review of major mortgage servicers conducted during Q 4 2010, at the height of the foreclosure crisis. e 2011 consent orders were amended in February 2013 and June 2015. e most recent announcement involves the termination of a consent order ending restrictions on Wells Fargo's servicing operations that the OCC placed on the bank as a result of the June 2015 amendments. "We are pleased that the OCC has validated the effectiveness of the significant changes we have made to our mortgage servicing operations and confirmed our release from the Consent Order," Wells Fargo spokesman Tom Goyda said. "Our team worked very hard to complete the requirements of the original Consent Order and the amendments, and continues to provide the best possible service to our customers." e restrictions mandated by the consent order included limitations on the acquisition of residential MSR portfolios, new contracts to perform residential mortgage servicing for other parties, the outsourcing or sub-servicing of new residential mortgage servicing activities to other parties, off-shoring new residential mortgage servicing activities, and new appointments of senior officers responsible for residential mortgage servicing. OCC said the restrictions will vary based on the individual circumstances of each bank, and the agency will continue to monitor the corrective actions for these institutions. e OCC told DS News that the restrictions did not impede consumers' access to mortgage loans. At the same time the consent order was terminated, the OCC penalized Wells Fargo $70 million (to be paid to the U.S. Treasury) after finding that the bank failed to timely correct the deficiencies identified in the 2011 consent orders. e OCC also determined that between December 2011 and March 2015, Wells Fargo filed payment change notices in bankruptcy courts that were not in compliance with safe and sound banking practices; also, the OCC found that between March 2013 and October 2014, Wells Fargo made escrow calculations that led to some borrowers being incorrectly denied for loan modifications, which constituted unsafe/unsound banking practices. The percentage of residential home sales in March 2016 that were distressed sales (including REO and short sales), which was down over- the-year by 2.7 percentage points. Source: CoreLogic STAT INSIGHT 9.9%

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