What’s in Store For Fannie Mae’s (OTC: FNMA) After Bank of America (NYSE: BAC) Penalty Reverse

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Earlier this week, a federal appeals court reversed a lower court order that Bank of America Corp. pay a $1.27 billion penalty in connection with mortgages sold by its Countrywide unit.

The U.S. Court of Appeals for the Second Circuit said it agreed with the bank, which argued the government didn’t provide sufficient proof at trial.

The civil lawsuit, known as the “Hustle Case”, was filed by the Manhattan U.S. attorney’s office against Bank of America (NYSE: BAC) in 2012. A jury found Bank of America liable for fraud in the case the next year.

It alleged that a precrisis Countrywide Financial Corp. program called Hustle had churned out shoddy mortgages with a focus on quantity, not quality, and then misrepresented those loans when selling them to Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC).

The appeals panel said the government didn’t prove the bank had intended to commit fraud when it signed deals with the housing entities, which it said was necessary in order to sustain the case.

According to the panel, “The government “presented no evidence” that the executives involved in the alleged scheme were “involved in the negotiation or execution of these contracts.”