Cash & Liquidity ManagementInvestment & FundingUS Government Sues Bank of America over Mortgage Securities

US Government Sues Bank of America over Mortgage Securities

The US government is suing Bank of America (BofA) for what it alleges is investor fraud over the sale of US$850m worth of residential mortgage-backed securities (MBS). Issued in January 2008, they eventually collapsed during the ensuing financial crisis and led to investor losses of more than US$100m according to the complaint.

The Department of Justice (DoJ) and the Securities and Exchange Commission (SEC) filed parallel suits in North Carolina. US attorney general, Eric Holder, said the government was seeking “justice for those who have been victimised.”

He added that president Obama’s financial fraud enforcement task force (FFETF) “will continue to take an aggressive approach to combatting financial fraud and uncovering abuses in the residential MBS market” and was pursuing a range of additional investigations.

BofA has already agreed to pay more than US$45bn to settle disputes stemming from the 2008 financial crisis. Although most of the cases dealt with relate to its acquisitions of brokerage Merrill Lynch and home lender Countrywide, the two latest civil lawsuits pertain to mortgages the government said were originated, securitised and sold by BofA’s legacy businesses. They accuse BofA of making misleading statements and failing to disclose important facts about the pool of mortgages underlying a sale of securities to investors in early 2008.

The bank denied the charges, stating that “these were prime mortgages sold to sophisticated investors”, although it indicated that it expected the latest suits in a filing last week.

BofA insists that the fact that the security failed was not the fault of the bank. “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,” it argued in a statement.

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