The US government has filed a civil fraud suit for over $1 billion against Bank of America and its predecessors Countrywide Financial Corporation and Countrywide Home Loans, according to a statement from the US Attorney’s Office for the Southern District of New York.

The suit relates to alleged multi-year mortgage fraud against the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, government-sponsored entities known as Fannie Mae and Freddie Mac respectively.

The complaint alleges that from at least 2007 through 2009 Countrywide and later BofA implemented a loan origination process dubbed “Hustle,” which “intentionally” rushed through loans without quality checkpoints, resulting in thousands of fraudulent and defective residential mortgages sold to government-backed Fannie Mae and Freddie Mac.

The two agencies rely on lenders’ guarantees that the loans they are delivering comply with set standards in areas like underwriting, quality control, self-reporting requirements and documentation.

Hustle, a name derived from “High-Speed Swim Lane”, was run through Countrywide’s full spectrum lending division, according to the statement. It was allegedly put in place just as loan default rates started to rise across the US, and as Fannie Mae and Freddie Mac were tightening up their loan purchasing requirements to try and reduce risk. Problems with the process highlighted by the Manhattan US Attorney included eliminating underwriters from loan production and relying on “unqualified and inexperienced clerks”.

Senior management within Countrywide’s full spectrum lending division were notified and warned about the likely results of the process, but these warnings allegedly went unheeded. Bank of America acquired Countrywide in 2008, after which time the process allegedly continued unabated through 2009.

“The complaint filed today alleges serious and significant misrepresentations that Bank of America made before and during the time taxpayers invested $45 billion in TARP funds in the bank,” said Christy Romero, the special inspector general for the Troubled Asset Relief Program.

The bank repaid taxpayers’ combined $45 billion TARP investment on December 9, 2009.

“Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters; the claim that we have failed to repurchase loans from Fannie Mae is simply false," a spokesperson for the firm said. This relates to the allegation, made in the complaint, that since the loans defaulted the bank has resisted buying "many of them" back.

"At some point, Bank of America can’t be expected to compensate every entity that claims losses that actually were caused by the economic downturn,” the spokesperson added.

“For the sixth time in less than 18 months, this Office has been compelled to sue a major US bank for reckless mortgage practices in the lead-up to the financial crisis. The fraudulent conduct alleged in today’s complaint was spectacularly brazen in scope,” said Manhattan US Attorney Preet Bharara.

“As described, Countrywide and Bank of America systematically removed every check in favour 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,” Bharara added.