The National  Memo Logo

Smart. Sharp. Funny. Fearless.

Monday, December 09, 2019 {{ new Date().getDay() }}

NEW YORK CITY (AFP) – The U.S. government on Tuesday sued Bank of America for defrauding investors in the sale of $850 million in mortgage-backed securities ahead of the housing bust.

The Department of Justice civil complaint alleges Bank of America lied to investors about the riskiness of the mortgage loans backing the securities, and intentionally avoided performing adequate due diligence on them, leading to investor losses surpassing $100 million.

Unlike some of the other sub-prime-based mortgage securities that soured during the housing bust and spawned messy litigation, the mortgages in Tuesday’s U.S. suit against Bank of America were sold as “prime” loans, meaning they purportedly had a low likelihood of falling into default.

The high rating of the loans “signified a safe and conservative investment and justified the high prices,” said the complaint.

However, the suit alleges the loans were far riskier than Bank of America said. It cited the bank’s former chief executive, Ken Lewis, as having referred to one type of loan included in the securities, “wholesale” loans executed through third-parties, as “toxic waste.”

Despite the “prime” rating, at least 23 percent of the mortgages in the securities have defaulted or were delinquent as of June 2013, according to the complaint.

A Bank of America spokesman denied the bank was responsible for the losses.

In an emailed statement, he argued that the “prime” designation was justified, saying the loans in question had performed better than similar loans originated and securitized at the time by other financial institutions.

Instead, he blamed the losses on the general downturn of the market and economy, which sank into deep recession in 2008-2009.

And he said the buyers of the securities were “sophisticated investors who had ample access to the underlying data.”

“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,” he said.

The government argues that more than 40 percent of the loans in one of the bonds did not meet Bank of America’s own underwriting standards.

Many had “glaring” problems such as overstated income for the borrowers, or fake employment data, that made them “wholly inconsistent” with a prime rating, the Justice Department said.

“As a result of this lack of due diligence, Bank of America had no basis to make many of the representations it made in the offering documents regarding the credit quality of the underlying mortgages,” it said.

In parallel action the Securities and Exchange Commission also levelled fraud charges against the bank over the same 2008 mortgage security offerings.

Bank of America has been damaged to a greater extent by the housing bust than some other rival banks, thanks in part to an ill-timed purchase of Countrywide Financial, once the country’s largest originator of mortgages.

The bank’s shares closed 1.1 percent lower at $14.64 in trade Tuesday.

Photo Credit: AFP/Frederic J. Brown

Advertising

Start your day with National Memo Newsletter

Know first.

The opinions that matter. Delivered to your inbox every morning

Rep. Devin Nunes

Reprinted with permission from AlterNet

Republican Rep. Devin Nunes of California is retiring from Congress at the end of 2021 to work for former President Donald Trump.

Keep reading... Show less

From left Ethan Crumbley and his parents Jennifer and James Crumbley

Mug shot photos from Oakland County via Dallas Express

After the 2012 massacre at an elementary school in Newtown, Connecticut, then-Rep. Mike Rogers, a Michigan Republican, evaded calls for banning weapons of war. But he had other ideas. The "more realistic discussion," Rogers said, is "how do we target people with mental illness who use firearms?"

Tightening the gun laws would seem a lot easier and less intrusive than psychoanalyzing everyone with access to a weapon. But to address Rogers' point following the recent mass murder at a suburban Detroit high school, the question might be, "How do we with target the adults who hand powerful firearms to children with mental illness?"

Keep reading... Show less
x
{{ post.roar_specific_data.api_data.analytics }}