Bank of America Faces Three More Mortgage Bond Related Investigations

Bank of America Faces Three More Mortgage Bond Related Investigations

Bank of America Corp (NYSE:BAC) is expected to face three more investigations from the United States Department of Justice (DOJ) related to its mortgage-backed securities, according to a report from Bloomberg based on information from sources familiar with the situation.

Bank of America Faces Three More Mortgage Bond Related Investigations

Bank of America’s violations

According to the sources, the California and Georgia attorneys offices are reviewing if Countrywide Financial Corp., the subprime lender acquired by Bank of America Corp (NYSE:BAC) in 2008 committed violations in its transactions. In addition, the attorney’s office in New Jersey is conducting an inquiry regarding the deals carried out by Merrill Lynch & Co., which was bought by the bank in 2009.

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Authorities are investigating Bank of America Corp (NYSE:BAC) for possible violations of the Financial Institution Reform, Recovery and Enforcement Act (FIRREA) of 1989.

Last August, authorities filed a lawsuit against Bank of America Corp (NYSE:BAC) in connection with its $850 million mortgage bond transactions. Back then, the bank said in its regulatory filing that it is cooperating with state and federal authorities regarding their investigation. Authorities are examining the process of how home loans were bought, bundled, and sold to investors.

DoJ’s intentions to file civil complaints

The Justice Department indicated its intention to file civil complaints against the bank on one or two jumbo prime securitizations. At the time, Bank of America Corp (NYSE:BAC) was engaged in discussions with regulators and explained its reasons why the “threatened civil charges were not appropriate.” The DOJ eventually filed a lawsuit involving one jumbo prime transaction.

Authorities alleged that Bank of America Corp (NYSE:BAC) misled investors regarding the quality of the loans included in the $850 million mortgage-backed securities. The Justice Department argued that the bank represented the bond as being backed by prime loans, but in fact the majority were riskier wholesale debts originated by outside brokers. Authorities also said that some were “PaperSaver” loans without proof of borrower’s income.

Improper mortgage-bond transaction investigation

Last year, President Barack Obama created a task force to coordinate investigations regarding the improper mortgage-bond transactions by banks. The six largest banks in the country incurred more than $100 billion in legal costs, which is more than the dividends paid to shareholders over the past five years since the credit crisis, based on data compiled by Bloomberg.

Jacob Frankel, former lawyer for the Securities and Exchange Commission (SEC) and currently a partner at Shulman Rogers Gandal Pordy & Ecker PA commented, “This incessant push for more cases where most thought the book had been closed creates an air of distrust for future dealings with the government. It appears to be a political response to political outrage.”

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