US sues Bank of America for fraud over mortgage bonds

The US government sued Bank of America for defrauding investors in the sale of $850 million in mortgage-backed securities ahead of the housing bust. The Department of Justice civil complaint alleges Bank of America lied to investors about the riskiness of the mortgage loans backing the securities, and intentionally avoided performing adequate due diligence on them, leading to investor losses surpassing $100 million. Unlike some of the other sub-prime-based mortgage securities that soured during the housing bust and spawned messy litigation, the mortgages in Tuesday’s US suit against Bank of America were sold as “prime” loans, meaning they purportedly had a low likelihood of falling into default. However, the suit alleges the loans were far riskier than Bank of America said. Despite the “prime” rating, at least 23% of the mortgages in the securities have defaulted or were delinquent as of June 2013, according to the complaint. A Bank of America spokesman denied the bank was responsible for the losses.


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