New York:
The US 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 the mortgages, leading to investor losses surpassing $100 million.
The government alleges that more than 40 percent of the loans in one investment did not meet Bank of America's own underwriting standards.
Many of the loans 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," the Justice Department said in a statement.
It pointed out that the bank's own chief executive at the time, Kenneth Lewis, had described the loans included in the bonds a "toxic waste".
In parallel action the Securities and Exchange Commission also levelled fraud charges against the bank over the same 2008 mortgage security offerings.
In response, a Bank of America spokesman defended the loans in question as "prime mortgages" that had performed better than similar loans originated and securitized at the time by other financial institutions.
"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," the spokesman said in a statement.
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 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 the mortgages, leading to investor losses surpassing $100 million.
The government alleges that more than 40 percent of the loans in one investment did not meet Bank of America's own underwriting standards.
Many of the loans 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," the Justice Department said in a statement.
It pointed out that the bank's own chief executive at the time, Kenneth Lewis, had described the loans included in the bonds a "toxic waste".
In parallel action the Securities and Exchange Commission also levelled fraud charges against the bank over the same 2008 mortgage security offerings.
In response, a Bank of America spokesman defended the loans in question as "prime mortgages" that had performed better than similar loans originated and securitized at the time by other financial institutions.
"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," the spokesman said in a statement.
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.
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