On Monday, HSH Nordbank AG - a German lender - filed a lawsuit
Bank of America Corporation
) for misrepresentation of documents while selling
mortgage-backed securities (MBS). The lodged complaint alleges
BofA of presenting modified documents related to the sale of
residential mortgage-backed securities (RMBS) worth over $218
Nordbank accused BofA along with its unit, Countrywide Financial,
of distortion and blunders in the underwriting standards for
mortgage loans that were combined along with the securities.
The case has been filed in the New York State Supreme Court in
Manhattan. However, BofA has abstained from commenting on the
Major U.S. banks are facing a wave of lawsuits claiming to have
sold substandard mortgage securities that imploded during the
financial crisis. These substantially added to the legal woes of
This year, similar actions have been taken against other banks -
JPMorgan Chase & Co.
The Goldman Sachs Group Inc.
Other Legal Charges Against BofA
Trouble has been brewing for BofA for quite sometime now.
Recently, it was sued by CIFG Assurance North America Inc, a bond
issuer, for fraudulent representations and breach of contract
over insurance policies tied to RMBS.
The lawsuit was based on CIFG's five financial guaranty
insurance policies pertaining to the two-structure transactions
that were arranged by BofA. These were backed by twenty-two risky
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In addition to this, BofA faces several other charges related to
the sale of defective mortgage securities. Earlier in November,
investors including Phoenix Light SF Ltd prosecuted BofA along
with its unit, Countrywide Financial, over the sale of $261
million worth of flawed residential mortgage-backed securities
using misleading statements.
Earlier in September, Phoenix Light had dragged BofA, along with
JPMorgan, Goldman as well as Ace Securities - a wing of
Deutsche Bank AG
) - to court for losses suffered over faulty mortgage-backed
securities. JPMorgan and Goldman are encountering a $1.8 billion
lawsuit, whereas Ace Securities is facing a $300 million charge.
BofA has been sued for losses amounting to $36.6 million over
$69.8 million worth of MBS.
Last week, another German lender, DZ Bank AG filed a lawsuit
against BofA for misrepresentation of documents while selling
MBS. The lodged complaint claimed that the company presented
modified documents related to the sale of over $546 million in
Litigation overhangs have been a common problem for major U.S.
banks since the financial meltdown. These lawsuits are expected
to tarnish the reputation and financials of these banks over
time. However, investors and other financial institutions,
bearing the brunt of these faulty practices, are expected to be
BofA currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating.