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BofA Sued by Justice Dept. for Mortgage Fraud

The fallout from the 2008 financial crisis continues as the Unites States Attorney General filed a lawsuit against Bank of America, alleging that the Bank sold toxic home loans to Fannie Mae and Freddie Mac, writes Reuters.

This is the first civil lawsuit brought by the DOJ in the mortgage crisis.

The lawsuit involves a scheme used to defraud the system when processing home loans. The scheme was named "hustle" and involved the speeding up of processing residential home loans.

In essence, mortgage lenders and brokers were given incentives to turn a blind eye to potential red flags and problematic loan applications. They were urged to speed the loan applications through, reports The Associated Press.

While the fraud lawsuit is a big one, it brings to light the issues that prospective homeowners faced in the wake of the housing bubble.

Toxic mortgages are essentially those mortgages that run a high risk of foreclosure. They are mortgages which won't likely be paid. Back in the days when lenders were taking "stated income" applications, there were many such mortgages. In those days, a prospective borrower didn't necessarily need to give their W2s and other proof of income when applying for a mortgage. They just needed to "state" their income and the loan would be approved.

That wasn't the only problem, however, with the way that mortgages were handled. With the Hustle system, other barriers were also removed for problematic borrowers, making it easier for a borrower to take out a loan.

In the end, when the housing bubble burst, there were numerous homeowners who simply couldn't make their payments.

As a result, banks took back many homes in foreclosure proceedings.

Says U.S. Attorney Preet Bharara, "This lawsuit should send another clear message that reckless lending practices will not be tolerated."

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