Stop me if you have heard something like this before. The Department of Justice announced a civil lawsuit on Tuesday alleging that Bank of America defrauded buyers of mortgage-backed securities by lying about the quality of the home loans involved. The Securities and Exchange Commission also announced a parallel case against BofA.
Yes, the Federal Housing Finance Agency (FHFA) and various private securitization investors, among other parties, have previously filed similar types of suits against BofA. This time, the allegations focus on a specific securities offering from 2008, one in which investors including Wachovia Bank and the Federal Home Loan Bank of San Francisco purchased over $850 million worth of supposedly high-quality mortgage-backed securities from BofA.
The DOJ estimates that investors will ultimately lose more than $100 million on the offering. As of June, the Justice Department said, 23% of the mortgages involved had failed or were delinquent.
Pious and Meritless Demands
What is most noteworthy, perhaps, about these latest charges — particularly to those of us who represent mortgage loan originators that sold loans to Countrywide or BofA in the past, and now must defend against BofA’s pious and generally meritless demands that those originators “indemnify” BofA for its alleged losses — are some of the quotes from BofA in response to the announcement of these new suits.
Such as: Bank spokesman Lawrence Grayson saying yesterday that the mortgages in question were “sold to sophisticated investors who had ample access to the underlying data,” and that “the loans in this pool performed better than loans with similar characteristics originated and securitized at the same time by other financial institutions,” and, finally, that “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.”
Mr. Grayson, it might surprise you to learn that BofA routinely dismisses such arguments when they are made (appropriately) by correspondents to BofA, which structured the very loan programs that gave rise to the “unprecedented” default rates, yet still presses its meritless claims against loan originators that sold it the loans it coveted.