NEW YORK — Bank of America, accused of lying about the quality of mortgages it passed along to financial firms Fannie Mae and Freddie Mac, was found liable for fraud Wednesday in a civil case the government said captured the frenzied pursuit of profits at all costs just before the economy collapsed in 2008.
A Manhattan jury returned its verdict after a monthlong trial focusing on prime mortgages that Bank of America's Countrywide Financial unit completed in late 2007 and 2008. U.S. District Judge Jed S. Rakoff said he would determine today when a penalty phase will begin.
The verdict was returned against Bank of America, Countrywide and a former executive, Rebecca Mairone.
Attorneys for the bank, which had denied there was fraud, didn't immediately respond to messages seeking comment Wednesday.
Mairone's attorney, Marc Mukasey, called her "a model of honesty, integrity and ethics."
"She never engaged in any fraud because there was no fraud. We'll fight on," he said.
U.S. Attorney Preet Bharara said the companies and Mairone were "liable for making disastrously bad loans and systematically removing quality checks in favor of (Bank of America and Countrywide's) balance."
"In a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow," Bharara said in a statement. "That profit, however, was built on fraud, as the jury unanimously found."
The trial related to mortgages the government said were sold at break-neck speed without regard to quality as the economy headed into a tailspin.
The government had accused the financial institutions of urging workers to churn out loans, accept fudged applications and hide ballooning defaults.
Assistant U.S. Attorney Jaimie Nawaday, in her closing argument, said the case was about "greed and lies."
"It is about people at Countrywide saying to each other that their loan quality is in the ditch, while telling Fannie Mae and Freddie Mac that their loans are investment quality," she said.
Fannie and Freddie, which packaged loans into securities and sold them to investors, were effectively nationalized in 2008 when they nearly collapsed from mortgage losses.
Government lawyers said Countrywide tried to churn out more mortgage loans through a program called the Hustle, shorthand for high-speed swim lane, which operated under the motto, "Loans Move Forward, Never Backward."
The government said the program eliminated checks meant to ensure mortgages were made to borrowers unlikely to default.
Nawaday accused Mairone in her testimony of going "on a fantastical voyage between two realities — what she said in the past and what she said on the stand." She said Mairone's explanations "don't make sense because they aren't true."
Bank of America lawyer Brendan V. Sullivan Jr. said in closing there was no fraud.
"We have been dragged down the rabbit hole into Alice in Wonderland," he said.
He defended the company's practices, saying there was a "vigorous quality-control program" that included 20 workers in India who studied mortgage files through the night for flaws.