The Justice Department and the Securities and Exchange Commission have both filed civil lawsuits against Bank of America alleging that the financial institution and certain affiliates defrauded investors about the riskiness of $850 million in residential mortgage-backed securities.
According to the complaint, around January 2008, the Charlotte-based lender sold Bank of America Mortgage Securities 2008-A certificates to investors by knowingly making materially false and misleading statements by failing to disclose important facts about the mortgages collateralizing the RMBS.
This included the bank’s failure to conduct loan level due diligence in the offering documents filed with the SEC, the complaint stated, as well as concerns about how the mortgages originated and the likelihood that the prime loans would perform as expected.
The DOJ said in the complaint that more than 40% of the 1,191 mortgages in the BOAMS 2008-A collateral pool failed to adhere to Bank of America’s underwriting standards.
Additionally, the nation’s second largest bank supposedly kept bad loans in the deal that had several origination problems, such as overstated income, fake employment, inflated appraisals, wrong loan-to-value ratios, undisclosed debt, occupancy misrepresentation, and mortgage fraud.
Because of these alleged errors in the pool, the DOJ says that Bank of America had no basis to make representations it made when offering the RMBS.
Lastly, the complaint alleges that Bank of America concealed important risks in the mortgages backing the BOAMS 2008-A securitization pool. For example, the bank originated more than 70% of the loans through third-party mortgage brokers, which were riskier than similar mortgages initiated by the financial institution.
Meanwhile, as this deal was being completed, Bank of America purportedly received internal reports that showed a significant decrease in the quality and performance of these securitized mortgages. Despite knowing this, the lawsuit said the bank never disclosed the information or possible risks to investors.
It is estimated that investors who acquired BOAMS 2008-A certificates will sustain total losses of more than $100 million.
“Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors,” said Anne M. Tompkins, U.S. attorney for the Western District of North Carolina. “Now, Bank of America will have to face consequences of its actions.”
However, Bank of America plans on fighting the charges made by both the DOJ and SEC.
“These were prime mortgages sold to sophisticated investors who had ample access to the underlying data and we will demonstrate that,” said Lawrence Grayson, spokesperson for Bank of America. “The loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions. Moreover, at the time this deal was securitized, and even now, wholesale channel loans have performed at least as well as loans originated in corporate channels.”