The civil verdict by a Manhattan federal court jury similarly found the bank's Countrywide Financial unit found liable, and also determined that former Countrywide executive Rebecca Mairone committed fraud while overseeing the loan-origination program.
Bank of America acquired Countrywide in July 2008.
The decision following a month-long trial focused on evidence that the Countrywide program processed mortgage applications at high speed with little checking for fraud, misrepresentations or other potential wrongdoing.
U.S. District Judge Jed Rakoff is expected to determine civil costs to be paid by the bank in the penalty phase of the case.
"Almost a year to the day after we brought suit, a unanimous jury has found Countrywide, Bank of America, and senior executive Rebecca Mairone liable for making disastrously bad loans and systematically removing quality checks in favor of its own balance," said Manhattan U.S. Attorney Preet Bharara in a statement after the verdict. "As demonstrated at trial, they adopted a program that they called 'the Hustle,' which treated quality control and underwriting as a joke."
Bank of America bought Countrywide "thinking it had gobbled up a cash cow," said Bharara, but profits from the program were "built on fraud."
Bank of America spokesman Lawrence Grayson said the Charlotte, N.C.-based financial giant, the second-largest U.S. bank, is studying the verdict.
"The jury's decision concerns a single Countrywide program that lasted several months and ended before Bank of America's acquisition of the company," said Grayson. "We will evaluate our options for appeal."
Defense attorney Marc Mukasey called Mairone "a model of honesty, integrity and ethics." Insisting there was no fraud, Mukasey ! said "we'll fight on."
Countrywide created the Hustle program, officially known as the HSSL, or High Speed Swim Lane, in 2007 as the real estate market started to collapse and the market for sub-prime mortgage loans dried up.
The aim was to move toward handling more prime mortgage loans, which generally are made to borrowers who have high credit ratings and can afford larger down payments.
But federal prosecutors charged that the program's design was to have loans "move forward, never backward," and to remove "toll gates" that could slow the loan approval process."
Employees assigned to the program received bonuses based on the volume of mortgages approved, a dramatic turnabout from previous metrics that focused more on loan quality, prosecutors charged.
An internal quality review in January 2008 found that 57% of Hustle loans defaulted, prosecutors charged in the lawsuit they filed last year. Thousands of loans approved under the program were ultimately sold to Fannie and Freddie.
While the case related to a small piece of the mortgage market, it could embolden other government investigations, said Kevin Whelan, national campaign director for the Home Defenders League, a national movement of homeowners underwater on their mortgages.
"The fact that they're winning in court could inspire the federal government to keep going with its own investigations into bank and executives," said Whelan. "It's not too late."
Contributing: Associated Press
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