Justice Dept. Sues Bank of America over Prime Mortgage Fraud
Five years after the financial crisis nearly leveled Wall Street, the U.S. Department of Justice has sued one of the nation’s largest banks for alleged mortgage fraud. The case deals not with the notorious subprime loans, but with prime jumbo loans—mortgages of more than $417,000 for a single-unit home.
The civil complaint claims Bank of America (BofA) defrauded investors who purchased more than $850 million in residential mortgage-backed securities (RMBS) contained in a particular bond (BOAMS 2008-A). The fraud occurred when BofA failed to tell investors that more than 70% of the mortgages backing the bond were bad, and that they came from mortgage brokers that weren't affiliated with the bank.
“Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors,” U.S. Attorney for the Western District of North Carolina Anne M. Tompkins said in a prepared statement. “Now, Bank of America will have to face the consequences of its actions.”
According to the complaint, BofA began selling BOAMS 2008-A RMBS certificates to investors in 2008 while “knowingly and willfully making materially false and misleading statements and by failing to disclose important facts about the mortgages collateralizing the RMBS, including Bank of America’s failure to conduct loan level due diligence in the offering documents filed with the U.S. Securities and Exchange Commission (SEC).”
Bloomberg columnist Jonathan Weil wrote that the “best part” about the case is that it is being litigated in court, instead of the government’s recent habit of settling privately with defendants.
“So we might actually find out if the government's allegations are true. Far better to file civil claims against a powerful corporate defendant and take it to trial, than pursue some weak-kneed settlement where the government collects a fine and the two sides obscure what happened so that you can't tell if the feds ever had a real case,” Weil said.
He also noted, however, that the Justice Department declined to name any bank executives in the lawsuit, making the case of “yet another instance of alleged frauds that somehow occurred without human intervention.”
Kenneth Lewis, who was CEO of Bank of America at the time of the alleged fraud, was named Banker of the Year in 2008 by the American Banker newspaper.
To Learn More:
Feds Get Around to Suing Bank of America (by Jonathan Weil, Bloomberg)
Justice Dept. Sues Bank of America Over Mortgage Securities (by Jessica Silver-Greenberg, New York Times)
Bank of America has Worst Big Bank Home Loan Customer Service Complaint Record (by Matt Bewig, AllGov)
U.S. Finally Sues Bank of America for Mortgage Fraud (by Noel Brinkerhoff and David Wallechinsky, AllGov)
Bank of America Smacked with Foreclosure Fraud Lawsuits (by Matt Bewig, AllGov)
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