My Response to Bank of America's Fine being Overturned

I am an attorney that participates in foreclosure litigation in Chicagoland exclusively representing the homeowners.  The recent news that Bank of America's $1.27 billion fine was overturned on appeal shocks me, and this country deserves better.

The appellate court asked a question that can be paraphrased, "Was Countrywide's willful but silent non-compliance [with the terms of its mortgage brokerage contract] with Freddie Mac fraud or was it just breach of contract?"  The Court likened Bank of America to a manufacturer that makes a fine quality product for awhile, and then begins to make the product of inferior quality as time goes by.  This is an ill-fitting analogy.

Bank of America (formerly Countrywide) made the foundational investment product for nearly the entire American economy.  As recent films such as "Inside Job" and "The Big Short" have pointed out, the market for mortgage backed securities was the underpinning of countless billions of dollars of investments serving as the low-risk low-interest diversification in otherwise risky portfolios.  The entire financial system was propped up because we were induced to rely on mortgages and the housing market as having a very low rate and incidence of default.  Obviously, the banking industry did little to discourage this view.

I submit a different analogy.  The mortgage brokering industry's actions in 2005-08 were more like an animal feed manufacturer that sells corn pellets laced with pathogens that cause tumors.  As livestock eat these pellets, they feel sated and generally well, but their bodies are pestilent.  When they are slaughtered, the tumors leak through the sluice grating of the butcher shop floor and drain into the water table.  The food product, drainage basin and local crops all suffer from the contamination.  In this case, our retirements, youth unemployment and property values bore the brunt of it all.

Moreover, the government never even attempted to argue at trial that Countrywide promised to provide mortgage loans of a quality it knew at that time it would not produce.  The government never argued that Countrywide induced Freddie Mac or Fannie Mae to purchase loans that Countrywide knew were junk.  The government put no evidence into the trial record that Countrywide's leadership knew these products were too risky.  We, as a nation, are owed better work from our representatives.

This will not be remembered as a story of the ineptitude of the justice system, but as a story of the incompetence of our regulators.  We're now 8 years on from the height of the mortgage crisis and Americans have still yet to see any relief at all.