NEW YORK (Reuters) - The U.S. government said Bank of America Corp's bid to throw out a jury verdict finding it liable for the sale of questionable loans to Fannie Mae (>> Federal National Mortgage Assctn Fnni Me) and Freddie Mac (>> Federal Home Loan Mortgage Corp) before the financial crisis, which led to a $1.27 billion penalty, defies common sense and should be rejected.

In a court filing on Thursday night, the U.S. Department of Justice said evidence at trial showed the bank's Countrywide unit lied to the government-controlled mortgage companies about the quality of loans being sold, as Countrywide emphasized speed and volume at the expense of quality.

It also accused Rebecca Mairone, a former Countrywide official trying to reverse a liability verdict against her, of trying to obscure evidence that showed she knew the loans were suspect, but sold them anyway.

U.S. District Judge Jed Rakoff in Manhattan imposed a $1.27 billion civil penalty against the second-largest U.S. bank in July, nine months after the jury verdict. He also ordered Mairone, the only individual charged, to pay $1 million.

Arguments by the defendants "defy the evidence, the law, and common sense," the government said. "Evidence of defendants' fraud was abundant."

The lawsuit centered on Countrywide's "High Speed Swim Lane" program, also called HSSL or Hustle, which scrapped procedures to weed out bad loans and rewarded staff based on volume. It was created before Bank of America bought Countrywide in July 2008.

The payout by Bank of America (>> Bank of America Corp) is not covered by the Charlotte, North Carolina-based lender's $16.65 billion mortgage settlement last month with federal and state authorities.

Bank of America spokesman Lawrence Grayson declined to comment on the government's filing, while Mairone's lawyer Marc Mukasey rejected its premise.

"The government gets it wrong right from the get-go," Mukasey said in an email. "There was no proof that Rebecca knew even a single loan was not of investment quality nor that she sold any loans knowing as much. Their continued scapegoating of her is heavy handed and frankly, nasty."

The case is U.S. ex rel O'Donnell v. Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 12-01422.

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe)

By Jonathan Stempel