BofA sued by U.S. for $1 billion over alleged mortgage fraud

Potential Losses

The suit increases the potential losses Bank of America faces from its acquisition of Countrywide, whose lax lending standards helped fuel the housing bubble. The bank has booked more than $40 billion in costs tied to the takeover.

Bank of America Chief Executive Officer Brian T. Moynihan, 53, is already engaged in disputes with Fannie Mae over who must pay for billions of dollars in failed loans made before and during the financial crisis. The bank had $12.3 billion in unresolved demands for loan refunds from the so-called government-sponsored enterprises as of Sept. 30, a 12 percent increase from the previous quarter.

Fannie Mae, based in Washington, and McLean, Virginia-based Freddie Mac are both under pressure to minimize the scale of their U.S. taxpayer bailouts. The firms, which buy mortgages from lenders and package them into securities for sale to investors, have collectively drawn more than $180 billion in taxpayer funds.

‘Reprehensible’ Conduct

Steven Linick, the inspector general of the Federal Housing Finance Agency, said in the statement announcing the suit that Bank of America’s conduct was “reprehensible.”

Earlier this month, New York Attorney General Eric Schneiderman sued JPMorgan Chase & Co., the biggest U.S. lender, over defective mortgage loans, a suit he said would act as a template for other such cases. The bank has denied wrongdoing.

Last year, Bank of America, JPMorgan and Citigroup were among 17 lenders sued by the FHFA for allegedly misleading Fannie Mae and Freddie Mac over billions of dollars of residential mortgage-backed securities.

Today’s suit was brought under the federal False Claims Act, which allows for triple damages. In announcing the case, Bharara said Fannie Mae and Freddie Mac losses totaled more than $1 billion.

The case is U.S. v. Bank of America Corp., U.S. District Court, Southern District of New York (Manhattan).

Bloomberg News

<< Page 2 of 2

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus