Arab Today, arab today us sues bank of america for fraud over mortgage bonds
Last Updated : GMT 11:36:57
Arab Today, arab today
Arab Today, arab today

US sues Bank of America for fraud over mortgage bonds

Arab Today, arab today

Arab Today, arab today US sues Bank of America for fraud over mortgage bonds

New York - AFP

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 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 US 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 .

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Arab Today, arab today us sues bank of america for fraud over mortgage bonds Arab Today, arab today us sues bank of america for fraud over mortgage bonds

 



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