US accuses Bank of America of mortgage-backed securities fraud
Government files two lawsuits against second-largest US bank
The US government has filed two civil lawsuits against Bank of America that accuse the bank of investor fraud in its sale of $850 million of residential mortgage-backed securities.
The lawsuits are the latest legal headache for the second-largest US bank, which has already agreed to pay in excess of $45 billion to settle disputes stemming from the 2008 financial crisis.
While most of the cases Bank of America has already confronted pertain to its acquisitions of brokerage Merrill Lynch and home lender Countrywide, the lawsuits filed pertain to mortgages the government said were originated, securitized and sold by Bank of America’s legacy businesses.
The residential mortgage-backed securities at issue, known as RMBS, were of a higher credit quality than subprime mortgage bonds and date to about January 2008, the government said, months after many Wall Street banks first reported billions of dollars in write-downs on their holdings of subprime mortgage securities.
The justice department and the US Securities and Exchange Commission filed parallel lawsuits in US district court in Charlotte, North Carolina, accusing Bank of America of making misleading statements and failing to disclose important facts about the pool of mortgages underlying a sale of securities to investors in early 2008.
Bank of America, which is based in Charlotte, responded to the lawsuits with a statement: “These were prime mortgages sold to sophisticated investors who had ample access to the underlying data, and we will demonstrate that.
“The loans in this pool performed better than loans with similar characteristics originated and securitised at the same time by other financial institutions. We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result.”
Bank of America shares fell 1.1 per cent to close at $14.64 on the New York Stock Exchange following news of the lawsuits, which were filed yesterday afternoon.
Bank of America had warned in a securities filing on Thursday about possible new civil charges linked to a sale of one or two mortgage bonds.
According to the lawsuits, Bank of America made misleading statements and failed to disclose important facts about the mortgages underlying a securitisation named BOAMS 2008-A.
More than 40 per cent of the 1,191 mortgages in the securitisation did not comply with the bank’s underwriting standards, according to the complaint.
“These misstatements and omissions concerned the quality and safety of the mortgages collateralizing the BOAMS 2008-A securitisation, how it originated those mortgages and the likelihood that the ‘prime’ loans would perform as expected,” the justice department said in its statement.
Threats of costly mortgage litigation have been dogging Bank of America for years. “It has been shown repeatedly that the origination process at Bank of
America and its subsidiaries failed to live up to their own internal guidelines and the resulting loans did not reflect the way they were characterised to investors,” said Donald Hawthorne, a partner at Axinn Veltrop & Harkrider , who has represented monoline insurers and RMBS investors in suits against mortgage originators, including Countrywide, relating to mortgage securities.