NEW YORK (Reuters) - A former executive of Bank of America's (>> Bank of America Corp) Countrywide unit told a federal jury on Tuesday that she did not knowingly sell toxic mortgages to Fannie Mae and Freddie Mac in the run-up to the financial crisis.
Rebecca Mairone, a former chief operating officer of Countrywide's Full Spectrum Lending Division, is the lone individual defendant in the lawsuit brought by the U.S. government against the bank, which acquired Countrywide in 2008.
The trial, now in its fourth week in U.S. District Court in Manhattan, is centered on the government's allegations that Countrywide defrauded Fannie Mae (>> Federal National Mortgage Association) and Freddie Mac (>> Federal Home Loan Mortgage Corp), the government-sponsored mortgage finance companies, by selling them thousands of defective mortgages. Countrywide sped up approvals to unqualified lenders in a process it called the "high-speed swim lane" (HSSL), or "Hustle."
Mairone, who oversaw the process, is one of only a handful of individual defendants in lawsuits the government has filed against major financial institutions over improper mortgage practices since the housing market meltdown. The Countrywide case is the first such case to reach trial.
At the start of Mairone's testimony, her lawyer, Marc Mukasey, asked a series of questions about whether she had deliberately sold substandard mortgages to Fannie and Freddie.
"No, never," she replied.
She said she believed HSSL would actually improve loan quality and that the company had controls in place to manage risks. Mairone, 46, is now a managing director at JPMorgan Chase & Co (>> JPMorgan Chase & Co).
During cross-examination, Assistant U.S. Attorney Jaimie Nawaday questioned Mairone about compensation plans for loan specialists and others, which included bonuses for funding a certain number of mortgages each month.
The government has accused Mairone and Countrywide of trading quality for volume by removing underwriters from the review process and paying employees based on the number of loans they produced.
Nawaday will continue questioning Mairone on Wednesday.
DEFENDANT CITES "LOAN QUALITY"
The case stems from a whistleblower lawsuit filed by former Countrywide executive Edward O'Donnell.
The government estimates the mortgage finance companies had a gross loss of $848.2 million on Countrywide's "Hustle" loans. The net loss on loans that were materially defective was $131.2 million, according to prosecutors.
In several hours of testimony on Tuesday, Mairone said she and other Countrywide employees were deeply committed to making sure the loans they sold were low risk.
"Loan quality was the foundation of what we did every day," she said. "That was the culture."
She also emphasized that decisions about how to design and manage HSSL, as well as steps taken to remedy flaws, were not unilaterally made but were the product of discussions with several company leaders.
The case is U.S. ex rel. O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.
(Reporting by Joseph Ax; Editing by Leslie Adler)
By Joseph Ax