The U.S. government on Tuesday slapped Bank of America (BofA) with two civil suits alleging investor fraud in its sale of $850 million of residential mortgage-backed securities.
The lawsuits are the latest legal hurdle for BofA, which has already agreed to pay more than $45 billion to settle disputes stemming from the 2008 financial crisis.
However, unlike the previous actions, which pertained mostly to BofA's acquisition of brokerage Merrill Lynch and home lender Countrywide, the lawsuits filed on Tuesday pertain to mortgages that were originated, securitized and sold by the bank's legacy businesses.
The parallel lawsuits, filed by the Justice Department and the U.S. Securities and Exchange Commission, accuse BofA of making misleading statements and failing to disclose important facts about the mortgages supporting the pool of prime residential mortgage-backed securities it sold to investors – including the Federal Home Loan Bank of San Francisco and Wachovia Bank National Association – in early 2008.
‘These were prime mortgages sold to sophisticated investors who had ample access to the underlying data, and we will demonstrate that,’ Bank of America said in a statement. ‘The loans in this pool performed better than loans with similar characteristics originated and securitized 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.’
According to the lawsuits, more than 40% of the 1,191 mortgages in the securitization did not comply with BofA's own underwriting standards.
‘These misstatements and omissions concerned the quality and safety of the mortgages collateralizing the [securities], how [the bank] originated those mortgages and the likelihood that the 'prime' loans would perform as expected,’ the Justice Department said in a statement.
For more, check out this Bloomberg News report.
