Bank of India has been sued by United States Government for fraud of over $850 million on security based mortgages. Authorities found that the securities those involved much more risk in comparison to what they were projected.
It is basically a story of dishonesty of a leading bank that the United States Government ultimately found out. Discovery of the fraudulent activity of the Bank has now prompted the authorities to undertake legal action against the bank by suing it.
Incidentally most of the securities are residential based.
These lawsuits are turning out to be the latest headache for Bank of America, the second largest in the country. An interesting development is that the Bank has already agreed payment of additional $45 billion in order to settle the disputes that are the outcome of the 2008 financial crisis.
“While most of the cases Bank of America has already confronted pertain to its acquisitions of brokerage Merrill Lynch and home lender Countrywide, the two civil lawsuits filed on Tuesday pertain to mortgages the government said were originated, securitized and sold by Bank of America’s legacy businesses” reports a leading daily.
All the residential mortgage-backed securities that were in issue and are known as RMBS, had higher credit qualities in comparison to subprime mortgage bonds. Most of the securities go back to the year 2008.
Probe in the issue came up on the wake of reports received from many Wall Street Banks regarding write down of billions of dollars on the subprime mortgage securities. Parallel lawsuits were filed by the US Securities as well as Exchange Commission in district courts of United States against the alleged fraud.
Suits were preferred in the courts at North Charlotte in North Carolina and the allegations were that of fraud and making misleading statements by the Bank of America on security bonds pledged by investors back in 2008.
Among the investors is the Federal Home Loan Bank of San Francisco as well as the Wachovia Bank National Association as was revealed from the law suit preferred by the Justice Department.
Statement that was filed by the Bank of America in response to the law suits was as follows. “These were prime mortgages sold to sophisticated investors who had ample access to the underlying data and we will demonstrate that the loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions. We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result.”
Law suits preferred against Bank of America have adversely affected its economic status as its share value feel by 1.1% slumping down to $14.64 with the news of law suits published.
Allegation against Bank of America is that it concealed important facts about the mortgage and securities under BOAMS- 2008A package as more than 40% of the mortgages did not conform to the Bank standards of securitization.
In any case, such misstatements by the Bank raised the apprehension about failure of the securitization process especially in respect of prime loans. It can adversely affect the US market as well.