By Dow Jones Business News, October 15, 2013, 04:43:00 PM EDT
By Shayndi Raice
Former Countrywide Financial Corp. executive Rebecca Mairone said the "hustle" program was no hustle.
Ms. Mairone, 46 years old, took the witness stand Tuesday in the U.S. government's civil suit in which she and Bank of
America Corp. ( BAC ) are accused of defrauding mortgage finance firms Fannie Mae ( FNMA ) and Freddie Mac ( FMCC ) through a
program called the High Speed Swim Lane, or Hustle, that sped up loan production and sales. Bank of America bought
Countrywide in 2008.
The government has argued that Countrywide systematically removed quality controls, like excluding underwriters from
the loan-approval process and relying more heavily on an automated Countrywide program to approve loans, that lead to a
higher rate of defective loans.
Ms. Mairone, who is now an executive at J.P. Morgan Chase & Co. (JPM), could face civil penalties of up to $1 million.
The government hasn't said how much it is seeking in damages, but it alleges Countrywide made $165 million from the
hustle program, while Fannie Mae and Freddie Mac suffered gross losses of $850 million on hustle loans and net losses of
For Bank of America, the case is also dragging back into the spotlight embarrassing details of Countrywide's runaway
lending machine at the height of the mortgage boom.
The government alleges Ms. Mairone helped create the hustle program to churn out home loans regardless of their
quality, rewarding employees for speed rather than quality and removing financial penalties employees would incur for
making bad loans. Prosecutors have tried to show that Ms. Mairone ignored concerns the program was creating a high rate
of defective loans and, instead of addressing the complaints, tried to limit the number of people who viewed reports on
During Tuesday's testimony, Ms. Mairone's lawyer asked her to explain one often-cited email in which Mr. O'Donnell
sent her a long list of concerns from employees about the new program. Ms. Mairone appeared to ignore the concerns and
responded at the time by saying "So it sounds like this may work--Is that what I'm hearing?"
Ms. Mairone told the jury of six women and four men that she wasn't ignoring employee concerns. She said she carefully
read all the concerns and thought that she had good answers to all their questions, and believed the new program would
improve loan quality by limiting the number of people who processed loans.
The hustle program, which ran from August 2007 until April 2008, was created at a time when the U.S. market for
subprime loans was beginning to collapse. The unit Ms. Mairone ran, Full Spectrum Lending, previously had focused almost
exclusively on subprime loans. The goal was to move into so-called prime loans, which carry the best interest rates and
are made to borrowers with high credit scores.
Ms. Mairone spent much of her time on the stand Tuesday directly contradicting the testimony of the government's star
witness and whistleblower, Ed O'Donnell, who served as head of underwriting at Countrywide under Ms. Mairone.
Mr. O'Donnell, who could make as much as $1.6 million if the government wins its case, told the jury the program led
to a degradation in loan quality.
Ms. Mairone said Tuesday the reason for creating the "hustle" was to make the process more efficient and improve
customer service. Before the hustle, she said, borrowers with solid credit scores were forced to go through a lengthy
process of handoffs and had no personal point of contact on their loan.
"From a customer perspective, I thought it was a very important design," she said of the hustle. Ms. Mairone added
that she thought limiting the number of people who processed loans would improve quality by giving loan specialists a
sense of ownership over a file.
Ms. Mairone also defended her decision to use the automated program, which she said was capable of making
sophisticated mathematical calculations about risk that a human being could not replicate.
Government witnesses testified that Ms. Mairone issued a reprieve for employees involved in the hustle program from
suffering a hit to their bonuses if they made a mistake on a loan. Ms. Mairone defended her decision Tuesday, saying "It
was really to be fair to employees. We wanted to give them time to come up to speed."
Ms. Mairone also noted in her testimony that ethics standards never were compromised or relaxed. She said a separate
unit reviewed loans for potential cases of fraud and employees found to have committed fraud on loan files were
terminated or had their lending rights revoked.
The government is expected to cross examine Ms. Mairone on Wednesday.
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