Magazine article Mortgage Banking

Justice Sues Bank of America over Sale of $850 Million in MBS

Magazine article Mortgage Banking

Justice Sues Bank of America over Sale of $850 Million in MBS

Article excerpt

* On Aug. 6, Attorney General Eric Holder and U.S. Attorney for the Western District of North Carolina Anne Tompkins announced they had filed a civil lawsuit against Charlotte, North Carolina-based Bank of America Corporation and certain affiliates, including Merrill Lynch, Pierce, Fenner & Smith, over the sale of certain mortgage-backed securities (MBS).

According to a press release from the Justice Department, the civil suit alleges that "Bank of America lied to investors about the relative riskiness of the mortgage loans backing the residential mortgage-backed securities [RMBS], made false statements after intentionally not performing proper due diligence and filled the securitization with a disproportionate amount of risky mortgages originated through third-party mortgage brokers."

The civil complaint was filed in U.S. District Court in Charlotte. The filed complaint alleges, "Bank of America defrauded investors, including federally insured financial institutions, who purchased more than $850 million in RMBS from Bank of America Mortgage Securities 2008-A (BOAMS 2008-A) securitization."

The filed complaint notes that more than 40 percent of the 1,191 mortgages in the BOAMS 2008-A collateral pool "did not substantially comply with Bank of America's underwriting standards in place at the time they were originated and did not have sufficient documented compensating factors."

According to the Justice Department's press release, "Bank of America did not conduct any loan-level due diligence at the time of securitization."

And the release also states, "Bank of America concealed important risks associated with the mortgages backing the BOAMS 2008-A securitization. For example, Bank of America originated more than 70 percent of the loans through third-party mortgage brokers. These loans, known as 'wholesale mortgages,' were riskier than similar mortgages originated directly by Bank of America. …

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