WASHINGTON: The US government has filed two lawsuits against Bank of America stating that the bank perpetrated a fraud involving $850 million of residential mortgage-backed securities.
The suits were filed by the Justice Department and the US Securities and Exchange Commission in US District Court in Charlotte on Tuesday.
“Unprecedented portion of the mortgage loans backing the security had been originated through mortgage brokers unaffiliated with the Bank of America Entities,” read the lawsuits.
The bank deliberately kept investors unaware of the risks connected to the securities, the lawsuit said.
In 2008, Bank of America sold RMBS (residential mortgage backed securities) to the investors and told them that they were supported by high quality, prime mortgage loans.
However, the bank failed to notice that over 40 percent of the mortgages did not meet underwriting guidelines and although it was aware of the troubled mortgages, it sold the securities.
According to the lawsuits, the bank made deceptive statements and concealed important facts about the mortgages.
“These misstatements and omissions concerned the quality and safety of the mortgages collateralizing the BOAMS 2008-A securitization, how it originated those mortgages and the likelihood that the ‘prime’ loans would perform as expected,” the Justice Department said in its statement.
A “material number” of mortgages in the pool “failed to materially adhere to Bank of America’s underwriting standards,” the statement said according to Reuters.
One of the employees of the bank said that she had to simply “validate the loans” rather than to look for flaws in them.
Bank of America has already faced a number of legal problems and according to prosecutors, the bank’s mortgage operations are a sign of thoughtless practices of Wall Street just before the financial crisis.
