The U.S. government said Wednesday it is suing Bank of America over allegations that it sold defective mortgage loans to government-sponsored enterprises, Fannie Mae and Freddie Mac, causing over US$1 billion in losses.

The U.S. attorney for the Southern District of New York, Preet Bharara, filed suit against the bank and the major mortgage lender it acquired in 2008, Countrywide Financial Corp., alleging that they engaged in a scheme to defraud the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) through a loan origination process, implemented called the “hustle”, which was intentionally designed to process loans at high speed and without quality checkpoints.

This process, it claims, generated thousands of fraudulent, and otherwise defective, residential mortgage loans, which were sold to Fannie Mae and Freddie Mac and later defaulted on, causing over US$1 billion dollars in losses and countless foreclosures.

This is the first civil fraud suit brought by the Department of Justice concerning mortgage loans sold to Fannie Mae or Freddie Mac. The complaint seeks civil penalties, as well as treble damages and penalties for over US$1 billion in losses suffered by Fannie Mae and Freddie Mac for defaulted loans sold by Countrywide and BofA. The allegations have not been proven.

“For the sixth time in less than 18 months, this office has been compelled to sue a major U.S. bank for reckless mortgage practices in the lead-up to the financial crisis,” noted Bharara. “The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope. As alleged, through a program aptly named ‘the Hustle’, Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill.”

He added that the firms “systematically removed every check in favor of its own balance – they cast aside underwriters, eliminated quality controls, incentivized unqualified personnel to cut corners, and concealed the resulting defects. These toxic products were then sold to the government sponsored enterprises as good loans. This lawsuit should send another clear message that reckless lending practices will not be tolerated.”