Bank of America Corporation
) continues to be embroiled in legal hassles. Recently, the
Department of Justice (DOJ) and the Securities and Exchange
Commission (SEC) filed 2 separate civil lawsuits against BofA
related to the sale of residential mortgage backed securities
(RMBS) in Jan 2008.
The lawsuits, filed in the U.S. District Court in Charlotte,
N.C., accused BofA of investor fraud while selling RMBS worth
$850 million. The company was imputed of misrepresenting the
risks and failing to disclose proper information associated with
the underlying securitization named BOAMS 2008-A.
Further, the lawsuits alleged that more than 40% of the 1191
loans in the above-mentioned RMBS did not fulfill BofA's own
underwriting standards. The company has been also accused of not
conducting proper loan-level diligence on the mortgages that were
used as collateral, leading to expense savings of $15,000.
Notably, the suits present details of email exchanges between
BofA's employees arguing about the appropriateness of the
underlying loans for RMBS.
The investors who purchased these loans included Wachovia Bank
National Association, which was later acquired by
Wells Fargo & Company
) and the Federal Home Loan Bank of San Francisco.
Notably, while refuting the charges, BofA stated that the
investors had sufficient access to underlying data. The company
will further its defense against the claims made by the DOJ and
the SEC in the court.
The filing of the lawsuit signals the government's and
regulators' willingness to pursue litigations against banks and
other financial institutions and to make them pay for their
flawed business conduct that led to the collapse of the financial
market in 2008.
The DOJ lawsuit has been filed under the Financial Institutions
Reform, Recovery and Enforcement Act, which has a 10-year statute
of limitations and therefore gives law enforcement agencies more
time to sue financial institutions.
In a similar case, in February this year, Standard & Poor's
Ratings Services (S&P) - a unit of
McGraw Hill Financial, Inc.
) - was sued by the DOJ for allegedly raising its credit ratings
on risky RMBS prior to the financial crisis. However, S&P has
denied these allegations.
Meanwhile, BofA continues to face lawsuits for sale of risky MBS
and RMBS during the period before the financial crisis. Though
the company has resolved some cases, others are still pending in
Among major settlements, in 2011, BofA reached an $8.5 billion
settlement deal with the private investors who had brought those
risky MBS. Further, in Jan 2013, the company resolved its
case with Fannie Mae with the payment of $11.6 billion and in May
2013, agreed to pay $1.6 billion to
) for resolution of conflict over guarantees on commercial
However, a number of lawsuits are still pending in court, most of
which are related to the sale of MBS by Countrywide Financial -
acquired in 2008.
BofA still has a long way to go to regain its former image. The
company has announced several initiatives that have now started
bearing fruit. All such measures will lead to enhanced financial
performance going forward.
Currently, BofA carries a Zacks Rank #3 (Hold).
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