By Jonathan Stempel
NEW YORK (Reuters) - A federal judge on Wednesday ordered Bank of America Corp <BAC.N> to pay $1.27 billion of damages after a federal jury found the second-largest U.S. bank liable for fraud over defective mortgages sold by its Countrywide unit.
U.S. District Judge Jed Rakoff in Manhattan ruled nine months after jurors found Bank of America and former Countrywide executive Rebecca Mairone liable for defrauding government-controlled mortgage companies Fannie Mae <FNMA.OB> and Freddie Mac <FMCC.OB> through the sale of shoddy loans by the former Countrywide Financial Inc in 2007 and 2008.
The case centered on a mortgage lending process known as "High Speed Swim Lane," "HSSL" or "Hustle," and which ended before Bank of America bought Countrywide in July 2008.
Investigators said the program emphasized quantity over quality, rewarding employees for producing more loans and eliminating checkpoints designed to ensure the loans' quality.
"While the HSSL process lasted only nine months, it was from start to finish the vehicle for a brazen fraud by the defendants, driven by a hunger for profits and oblivious to the harms thereby visited, not just on the immediate victims but also on the financial system as a whole," Rakoff wrote.
Rakoff based the penalty on 17,611 Hustle-generated loans, for which Fannie Mae and Freddie Mac paid $2.96 billion to Countrywide. He said the damages award reflected a finding by a government expert that only some of the loans had material defects, while others were acceptable.
The government had sought $2.1 billion of penalties. Rakoff also directed Rebecca Mairone, a former mid-level Countrywide executive who was the only individual charged in the case, to pay $1 million. The government had sought about $1.2 million.
Bank of America spokesman Lawrence Grayson said the $1.27 billion award "simply bears no relation to a limited Countrywide program that lasted several months" and ended before the Charlotte, North Carolina-based bank bought the company. "We're reviewing the ruling, and will assess our appellate options."
Mairone later began to work at JPMorgan Chase & Co <JPM.N>, and used her maiden name of Rebecca Steele. Her lawyer, Marc Mukasey, did not immediately respond to a request for comment.
A spokeswoman for U.S. Attorney Preet Bharara in New York, who brought the case, declined to comment.
Both defendants had denied wrongdoing and said they should not be penalized. Bank of America also said Countrywide actually lost money selling the loans once costs were factored in.
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 Jonathan Stempel in New York; Editing by Bernard Orr)