This week jury selection began in the Department of Justice's case against Bank of America in what Reuters has called "the government's first financial crisis case to go to trial against a major bank over defective mortgages."
The DOJ has sued Bank of America for Countrywide's alleged fraudulent peddling of bad mortgages to Fannie Mae and Freddie Mac back in 2007. Bank of America inherited Countrywide's legal morass when it purchased the company in 2008.
Today, the Economist stated that the "Manhattan trial should shine needed light on the pre-crisis mortgage market." The trial is expected to include testimony from nearly 70 witnesses and last four to five weeks.
The government alleged that Countrywide committed fraud by falsely representing to Fannie and Freddie that it had tightened underwriting guidelines, while Countrywide was actually pushing through bad loans at high speeds by eliminating loan quality checkpoints and paying employees based on volume of loans originated. Fannie and Freddie claim that Countrywide's representations induced them to purchase hundreds of bad mortgages and suffer losses of over $100 million. Countrywide's defense will likely center around an argument that Fannie and Freddie were experts in the mortgage market and knew exactly what they were purchasing.
While it remains to be seen whether the trial will illuminate the events that led to the financial crisis as predicted by the Economist, the trial will undoubtedly reverberate through the entire financial services industry and should have its share of interesting moments.
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