Countrywide, once the US's largest subprime mortgage company, and one of its former executives have been found guilty of fraud by a New York jury.
The lender is now owned by Bank of America, and the decision marks the first time a bank has been found by a US court to be responsible for wrongdoing tied to its dealings in the financial crisis.
Countrywide was found guilty of defrauding federal mortgage giants Fannie Mae and Freddie Mac as the height of the housing crisis. The government claims Fannie and Freddie made a gross loss of $848m on suspect loans they bought from Countrywide – an amount the government said it would be seeking to recoup from BoA.
The jury also found former Countrywide executive Rebecca Mairone guilty of fraud. Mairone was the only individual named as a defendant in the government's lawsuit.
Countrywide was bought by Bank of America in 2008 as the housing market spiralled towards a collapse driven by bad lending and speculation.
Prosecutors in the office of Preet Bharara, the US attorney for the southern district of New York, alleged that Countrywide ran a scheme called "Hustle" before the collapse, aimed at funnelling a rapidly deteriorating portfolio of home loans on to Fannie and Freddie.
The Hustle (or HSSL, for High Speed Swim Lane) program stripped back underwriter reviews for loans, leaving few to no controls in the loan approval process. Even loans in which the borrower's income wasn't independently verified went unreviewed by underwriters, Bharara alleged.
Countrywide assured Fannie and Freddie that underwriting standards had been tightened. At the same time, the company "eliminated every significant checkpoint on loan quality and compensated its employees solely based on the volume of loans originated, leading to rampant instances of fraud and other serious defects," Bharara alleged.
Most of the wrongdoing took place before Bank of America acquired Countrywide, but it continued into 2009, "well after" the acquisition, the lawsuit had said.
Bank of America said it plans to appeal. It said in a statement: "The jury's decision concerned a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company. We will evaluate our options for appeal."
In closing arguments of the four-week trial, assistant US attorney Jaimie Nawaday cited emails in which Countrywide employees described Hustle loans as "loser loans." She said employees believed their loan quality was "in the ditch" but they still sold them to Fannie Mae and Freddie Mac "for a quick profit."
Mairone, who served as chief operating officer for Countrywide's Full Spectrum Lending Division, defended her role at the company the trail. She said sales competitions with titles including 'On-Fire February' and 'March Madness' were "certainly not something that got in the way of controls."
Taking to the stand last week she told the court that quality had been important at the company.
"You cannot fund a loan without quality," she said. "It's not good for the customer, it's not good for the company and it's not good for the investors."
Civil penalties in the case will be determined by Manhattan district judge Jed Rakoff at a later date.
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