CHARLOTTE, N.C. (Legal Newsline) -- The U.S. Department of Justice is suing Bank of America Corp., and certain affiliates, alleging the bank lied to investors about the "relative riskiness" of mortgage loans backing residential mortgage-backed securities, or RMBS.
The government filed its 73-page complaint in the U.S. District Court for the Western District of North Carolina Charlotte Division Tuesday.
The Bank of America affiliates include: Merrill Lynch; Pierce, Fenner & Smith f/k/a/ Banc of America Securities LLC; Bank of America N.A.; and Banc of America Mortgages Securities Inc.
The complaint also alleges that the bank made false statements after intentionally not performing proper due diligence, and filled the securitization with a disproportionate amount of risky mortgages originated through third-party mortgage brokers.
The filing is part of ongoing efforts by President Barack Obama's Financial Fraud Enforcement Task Force's RMBS Working Group to investigate fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.
New York Attorney General Eric Schneiderman is one of the group's five co-chairs.
"I applaud Attorney General (Eric) Holder for taking this important step toward holding Bank of America accountable for packaging and selling toxic loans to investors and brokers, a key cause of the housing collapse that crashed our economy and still plagues communities to this day," Schneiderman said in a statement Tuesday.
"The housing crisis in New York is far from over, and actions like these are necessary to ensure that homeowners are protected from similar conduct by banks and lenders in the future."
A RMBS is a bond backed by of a pool of residential mortgage loans that were packaged together and sold in different tranches, or risk levels, to investors.
The DOJ complaint alleges that Bank of America defrauded investors, including federally-insured financial institutions, who purchased more than $850 million in RMBS from Bank of America Mortgage Securities 2008-A, or BOAMS 2008-A, securitization.
According to the complaint, in or about January 2008, Bank of America sold BOAMS 2008-A RMBS certificates to investors by knowingly and willfully making materially false and misleading statements and by failing to disclose important facts about the mortgages collateralizing the RMBS, including Bank of America's failure to conduct loan level due diligence in the offering documents filed with the U.S. Securities and Exchange Commission.
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.
According to the DOJ, investors in the BOAMS 2008-A certificates have already suffered millions of dollars in losses and it is estimated that total losses sustained by investors will exceed $100 million.
The government's civil complaint seeks civil penalties from the bank under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA.
Also Tuesday, the SEC filed civil charges against the bank for defrauding investors.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.