The Countrywide unit of Bank of America Corp was found to be liable for fraud committed against mortgage firms Freddie Mac and Fannie Mae through the sale of thousands of defective loans. This is the first case that had gone to trial filed by the United States against a financial institution for defective mortgages transactions.

In another case filed in New York, a federal grand jury also found former Countrywide Financial Corp executive Rebecca Mairone for fraud committed against the United States. She is the only individual thus named as defendant in the government's lawsuit.

US District Judge Jed Rakoff, after excusing the jury, had advised lawyers he would be determining the amount of civil penalties imposable at a later date. Assistant US Attorney Pierre Armand proposed that the judge impose a penalty of either USD848 million representing the gross losses of the two mortgage firms or USD131 million for estimated net losses on the defective transactions.

A hearing for arguments had been set for December 5 by Judge Rakoff. He said he would be ruling on the issues by December 31. If there is a determination for a need for an evidentiary hearing, he advised lawyers of all parties to be prepared with their witnesses by the first week of January.