Bank of America's Countrywide unit sold thousands of bad loans, defrauding Fannie Mae and Freddie Mac out of more than $1 billion in mortgages, the U.S. said at the start of a federal trial.

"Why did Countrywide do this?" Assistant U.S. Attorney Pierre Armand said today in opening statements in Manhattan. "They did it for the money."

The U.S. sued Bank of America in October, joining a whistle-blower action filed by a former Countrywide executive, Edward O'Donnell. The U.S. claims Bank of America and Countrywide, which it acquired in 2008, sold thousands of defective loans from 2007 to 2009 to the home-mortgage finance companies. The case is the first brought by the U.S. against a bank over defective mortgages to go to trial.

Countrywide engaged in a "host of irresponsible origination practices that prioritize funding speed and discourage scrutiny and quality into a singularly risky loan manufacturing process that pumped out large quantities of poor quality loans," prosecutors in the office of Manhattan U.S. Attorney Preet Bharara have alleged in court papers.

Government-sponsored entities such as Fannie Mae and Freddie Mac purchased single-family mortgages from lenders. The U.S. alleges that in order to maintain high revenue despite a "cratering" market for subprime mortgages, a division of Countrywide initiated a loan program called "High Speed Swim Lane" or "HSSL" in August 2007.

The program was designed to reduce the number of days spent processing loans from 45 to 60 days to just 10 to 15 days. The U.S. alleges that the program also reduced effective oversight and eliminated underwriter review of riskier loans. As a result, the HSSL program "effectively guaranteed" that the loans sold to Fannie Mae and Freddie Mac were of lower quality than represented, the U.S. said.

U.S. District Judge Jed Rakoff, who is presiding over the case, today granted a request by Charlotte, North Carolina-based Bank of America and Countrywide to bar prosecutors from presenting trial evidence and claims that they "are responsible for causing the worldwide financial crisis in whole or in part."

The case is U.S. v. Countrywide Financial Corp., 1:12- cv-01422, U.S. District Court, Southern District of New York (Manhattan).

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