Bank of America duped investors, alleges US justice department
07 Aug 2013
The US Department of Justice (DoJ) yesterday sued Bank of America (BoA) alleging that the bank had defrauded investors of $850 million by understating the risks of the mortgages securities.
The government alleged that BoA ''knowingly and wilfully misled investors about the quality and safety of their investments'' in a residential mortgage-backed security.
BoA concealed important risks associated with the mortgages backing the BOAMS 2008-A securitization, a DoJ statement said.
More than 40 per cent of the 1,191 mortgages in the BOAMS 2008-A collateral pool did not substantially comply with BoA's underwriting standards in place at the time they were originated and did not have sufficient documented compensating factors, the statement added.
Additionally, BoA did not conduct any loan-level due diligence at the time of securitisation. According to the complaint, this was a violation of BoA's own policies, procedures and prior practice, and was contrary to industry standards and investor expectations.
BoA lashed back arguing prime mortgages sold to sophisticated investors were secured. "These mortgage loans shot back to default causing these securities to lose their value due to the collapse of housing market, which we are not responsible, and so the bank is not at fault," the bank argued.
US Attorney Tompkins said that BoA will now face the consequences of its actions as its practices have lead up to the losses to the investors.
Attorney General Eric Holder said in a statement yesterday that President Barack Obama's Financial Fraud Enforcement Task Force, which pulled the curtain over Bank of America, ''will stroll with an aggressive approach to combat financial fraud and investigate abuses in the residential mortgage-backed securities market,'' and is pursuing ''a range of additional investigations.''
BoA has recently announced a series of settlements, including an $8.5 billion settlement with investors dealing with similar mortgage-based securities and a $1.6 billion deal with MBIA Inc, a bond insurer.
BoA shares fell 1.1 per cent to close at $14.64 on the New York Stock Exchange following news of the lawsuits.
