By David Ingram and Peter Rudegeair
WASHINGTON/NEW YORK Aug 6 The U.S. government
on Tuesday filed two civil lawsuits against Bank of America
that accuse the bank of investor fraud in its sale of
$850 million of residential mortgage-backed securities.
The lawsuits are the latest legal headache for the
second-largest U.S. bank, which has already agreed to pay in
excess of $45 billion to settle disputes stemming from the 2008
While most of the cases Bank of America has already
confronted pertain to its acquisitions of brokerage Merrill
Lynch and home lender Countrywide, the lawsuits filed on Tuesday
pertain to mortgages the government said were originated,
securitized and sold by Bank of America's legacy businesses.
The residential mortgage-backed securities at issue, known
as RMBS, were of a higher credit quality than subprime mortgage
bonds and date to about January 2008, the government said,
months after many Wall Street banks first reported billions of
dollars in write-downs on their holdings of subprime mortgage
The Justice Department and the U.S. Securities and Exchange
Commission filed parallel lawsuits in U.S. District Court in
Charlotte, North Carolina, accusing Bank of America 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 investors included the Federal Home Loan Bank of San
Francisco and Wachovia Bank National Association, the Justice
Department lawsuit said.
Bank of America, which is based in Charlotte, responded to
the lawsuits with a statement: "These were prime mortgages sold
to sophisticated investors who had ample access to the
underlying data, and we will demonstrate that.
"The loans in this pool performed better than loans with
similar characteristics originated and securitized at the same
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."
Bank of America shares fell 1.1 percent to close at $14.64
on the New York Stock Exchange following news of the lawsuits,
which were filed late in the afternoon.
Bank of America had warned in a securities filing on
Thursday about possible new civil charges linked to a sale of
one or two mortgage bonds.
According to the lawsuits, Bank of America made misleading
statements and failed to disclose important facts about the
mortgages underlying a securitization named BOAMS 2008-A. More
than 40 percent of the 1,191 mortgages in the securitization did
not comply with the bank's underwriting standards, according to
"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.
Threats of costly mortgage litigation have been dogging Bank
of America for years.
"It has been shown repeatedly that the origination process
at Bank of America and its subsidiaries failed to live up to
their own internal guidelines and the resulting loans did not
reflect the way they were characterized to investors," said
Donald Hawthorne, a partner at Axinn Veltrop & Harkrider LLP,
who has represented monoline insurers and RMBS investors in
suits against mortgage originators, including Countrywide,
relating to mortgage securities.
In 2011, the bank's shares fell more than 20 percent in a
single day after American International Group filed a
$10 billion lawsuit accusing the bank of mortgage fraud.
Weeks later, Warren Buffett's Berkshire Hathaway Inc
swooped in with a $5 billion investment to shore up
confidence in the bank. Since then, Bank of America's stock has
more than doubled as the bank has announced agreements to settle
major disputes, and investors have regained confidence in its
Among major deals, the company agreed to an $8.5 billion
settlement with mortgage-backed securities investors, a $1.6
billion settlement with bond insurer MBIA Inc, and a
settlement worth more than $10 billion with Fannie Mae
, the government-controlled mortgage finance provider.
The lawsuit signals the federal government's willingness to
pursue litigation challenging banks securitizations and
marketing practices even as the financial crisis recedes further
into the past.
The Justice Department's lawsuit was brought under the
Financial Institutions Reform, Recovery and Enforcement Act, a
savings-and-loan-era law that federal prosecutors have revived
in recent years to continue pursuing civil fraud charges against
financial institutions. It has a 10-year statute of limitations,
double the deadline under other securities fraud
The U.S. attorney's office in Manhattan brought a separate
suit against Bank of America under that act last October over
losses that Fannie Mae and Freddie Mac suffered on loans the
government said were deficient.
Attorney General Eric Holder said in a statement on Tuesday
that President Barack Obama's Financial Fraud Enforcement Task
Force, which brought the latest lawsuit against Bank of America,
"will continue to take an aggressive approach to combatting
financial fraud and uncovering abuses in the residential
mortgage-backed securities market," and is pursuing "a range of
Whether future investigations will succeed remains to be
"Is this the first shot across the bow in terms of a larger
campaign or is it trying to satisfy the press that the federal
government is awake at their station but really only taking aim
at a very small piece of a very big problem?" Hawthorne said.