The US federal prosecutors filed a lawsuit against Bank of America on Wednesday accusing the financial giant of fraudulently selling toxic mortgage loans to Fannie Mae and Freddie Mac.
The complaint was related to housing loans lent by Countrywide Financial Corp., a subsidiary bought by Bank of America in 2008.
Countrywide initiated a scheme named as "Hustle" to accelerate expansion of housing loans in 2007 and the program ran through 2009 well after the takeover was completed in July 2008.
The program let the "defect rates" of the loans soar to a dangerous level, but Countrywide still sold these loans to Fannie Mae and Freddie Mac without alerts and caused $1 billion of losses.
The lawsuit was filed under the False Claims Act which could allow judges to fine Bank of America with a penalty three times as high as the $1-billion losses.
Bank of America was not immediately available for comment.
Last month, Bank of America agreed to pay $2.4 billion to settle a lawsuit accusing it of hiding important information when taking over Merrill Lynch & Co. in 2009.
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