Bank of America (BAC) and two subsidiaries are now facing SEC charges for allegedly bilking investors in an residential mortgage-backed securities offering that led to close to $70M in losses and about $50 million in anticipated losses in the future. The US Department of Justice also has filed its securities lawsuit over the same allegations.
In its securities lawsuit, submitted in U.S. District Court for the Western District of North Carolina, the Securities and Exchange Commission contends that the bank, Bank of America Mortgage Securities (BOAMS) and Banc of America Securities LLC, which is now known as Merrill Lynch, Pierce, Fenner & Smith, conducted the RMBS offering, referred to as the the BOAMS 2008-A and valued at $855 million, in 2008. The securities was sold and offered as “prime securitization suitable for the majority of conservative RMBS investors.
However, according to the regulator, Bank of America misled investors about the risks and the mortgages’ underwriting quality while misrepresenting that the mortgage loans backing the RMBS were underwritten in a manner that conformed with the bank’s guidelines. In truth, claims the SEC, the loans included income statements that were not supported, appraisals that were not eligible, owner occupancy-related misrepresentations, and evidence that mortgage fraud was involved. Also, says the regulator, the ratio for original-combined-loan-to-value and debt-to-income was not calculated properly on a regular basis and, even though materially inaccurate, it was provided to the public.
The Commission believes that because there were a material number of loans that were not in compliance with the bank’s underwriting guidelines and concentration of risky wholesale loans were not proportionate, BOAMS 2008-A sustained an 8.05 percent cumulative net loss rate through June of this year, which is the greatest loss of rate of any BOAMS securitization, comparably speaking, and this violated of the Securities Act of 1933.
As for the Justice Department’s RMBS fraud case, which is also a civil suit, the government says that not only did Bank of America lie to investor about the risks, but also it made false statements after purposely not conducting appropriate due diligence and also including in the securitization high-risk mortgages of a disproportionate quantity that were originated via third party mortgage brokers.
This securities lawsuit is part of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group’s ongoing initiatives to target misconduct involving this section of the market. U.S. Attorney Tompkins says that now, Bank of America will have to deal with consequences arising from its alleged actions.
The SSEK Partners Group helps institutional investors and others recover their RMBS fraud losses. Contact us today to request your free case assessment. Our securities attorneys have helped thousands of investors recoup their investment losses.
SEC Charges Bank of America With Fraud in RMBS Offering, SEC, August 6, 2013
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