A US appeals court threw out a nearly $1.3 billion penalty against Bank of America on Monday, concluding the bank had not committed fraud amid the housing bust. The federal court ruling overturned an October 2013 jury verdict that Countrywide's sale of bad loans to mortgage finance firms Fannie Mae and Freddie Mac constituted fraud.
A federal judge subsequently had sentenced Bank of America, which acquired Countrywide in 2008, to a $1.27 billion penalty.
The US Justice Department had alleged that Countrywide had, under the so-called "Hustle" program, eliminated key checkpoints on loan quality and compensated employees solely based on loan volumes. That led to "rampant instances of fraud," it alleged. But BofA argued on appeal that the evidence "shows at most an intentional breach of contract, but was insufficient to show fraud," the US appeals panel wrote. "We agree, concluding that the trial evidence fails to demonstrate the contemporaneous fraudulent intent necessary to prove a scheme to defraud through contractual promises."