WASHINGTON, January 5, 2014 — Bank of America is in the newspaper every other day, or so it seems. “You are in trouble” news still sells.
BOA purchased troubled mortgage lender Countrywide Financial in 2008 for $2.5 billion. They should have passed on the deal. CWF’s portfolio consisted largely of faulty mortgage-backed securities burdened considerably with tranches of liar loans.
Industry analysts place BOA’s losses following the deal at over $30 billion. The losses came from defaults on the underlying bad mortgage loans and from the countless lawsuits filed against the lender all over the country.
This past August, the Department of Justice and the Securities Exchange Commission filed civil lawsuits against BOA claiming that BOA defrauded purchasers of mortgage-backed securities by falsifying information about the quality of the home loans involved. DOJ announced it is investigating criminal activity in the matter.
BOA’s attorneys have asked the Court to throw out these cases.
Mortgage-backed securities are created by packaging together groupings or “tranches” of residential mortgage loans. When millions of homeowners defaulted on their loans, investors in these securities were left holding the bag when banks could not pay up. These securities played a big part in furthering the 2008 housing market collapse and deepening the resulting financial crisis. BOA was among those banks positioned at dead center in the middle of these loans.
Anne Tompkins, one of many U.S. Attorneys involved in the ensuing litigation against BOA said BOA’s “reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors.”
Settling claims or paying them after verdicts were rendered has become BOA’s standard operating procedure in these protracted legal matters.
Following the 2008 crisis, BOA took $25 billion from the government as “bailout” money, agreeing to modify (re-write with more affordable terms) residential mortgage loans for qualified homeowners. Unfortunately, BOA thereafter did not act honorably, to say the least. Litigation ensued and former BOA employees reported that the bank lied to borrowers and falsified its performance when reporting to the government the number of loans that had been modified.
Steven Cupples, who supervised a team of Bank of America underwriters until June 2012 revealed that BOA “double counted loans that were in different stages of the modification process. It was well known among employees that the numbers Bank of America was reporting to the government and to the public were simply not true.”
In 2011 BOA paid $500 million to settle a Maine State Retirement System lawsuit originating from the system’s failed investment in what were originally CWF loans. That same year, BOA paid $8.5 billion in a lawsuit originated by the Bank of New York, stemming from faulty mortgage backed investments.
The next fiscal year, 2012, did not provide BOA with any relief. In April, BOA was identified as one of five “big banks” that acted as servicing companies for mortgage loans. Bank of America took over the job of collecting checks, making property tax and insurance payments, assessing late fees and other clerical work on a share of tens of millions of loans that were written during the housing boom of the mid-2000s.
In a perverse effort to profit on fees, and in direct violation of its investor’s interests, BOA actually encouraged foreclosures. If a borrower defaults on a loan and the bank forecloses, the investors who own the loan bear the loss on any unpaid balance. As a mortgage servicer, BOA profited on the foreclosure process, since it generates a bevy of fees as a result of legal work required to seize the home to property inspections.
Litigation testimony that surfaced this past June revealed that BOA routinely denied qualified applicants a chance to modify their loans, and that BOA loan officers and managers were paid cash bonuses and given other financial incentives and perks to push homeowners into foreclosure. Foreclosure quotas were actually spelled out in monthly management meetings.
BOA’s punishment for these activities? $26 billion.
In 2012, a National Fair Housing Alliance survey that included BOA found that buildings in predominantly white neighborhoods were more likely to be properly maintained by the bank than those in non-white parts of town. The non-white homes more often fell into disrepair, which caused property values to plummet. Attendant public health and safety concerns often followed. The NFHA filed a federal discrimination complaint against BOA for violations of the Fair Housing Act.
In 2012 BOA settled a class action lawsuit for $410 million, stemming from its practice of improperly charging overdraft fees to its debit-card holders.
In June, 2013 BOA agreed to pay $624 million following a class action lawsuit filed by several Pension Funds and other New York investors, all purchasers of faulty mortgage backed investments.
In October, in an isolated case, BOA finally stopped harassing a homeowner whose mortgage debt was discharged in bankruptcy. BOA ignored warnings from the bankruptcy court judge, who then imposed a fine of $10,000 per month if the harassment continued.
Also in October, BOA’s campaign of customer telephone harassment ended with BOA agreeing to pay $32 million. BOA used round the clock pre-recorded “robo-calls” to contact its customers who were behind on mortgage and credit card payments.
In November, a federal lawsuit was filed addressing BOA’s decision to discriminate against pregnant homeowners. They decided if you are pregnant, you are too big of a risk to refinance your mortgage. The Department of Housing’s lawsuit alleges BOA violated the Fair Housing Act’s prohibition against discrimination on the basis of gender or familial status.
Another CFW related lawsuit settled last month for $500 million. It was filed on behalf of investors who purchased poor quality mortgage loans.
In a Wall Street Journal interview on November 6, 2013, Brian Moynihan (total compensation as CEO in 2011 $7.391 million, $12 million in 2012), who is nearing his fourth year as CEO of BOA, said it’s been a rough four years.
WSJ editor Gerard Baker says that Moynihan has worked to soothe miffed regulators and government officials, and aggressively settle mortgage-related lawsuits while other banks decided how hard to fight them.
With all due respect to the CEO, in light of BOA’s issues, consider:
Date Total BOA assets BOA stock price
12/31/11 $2.276 Trillion $ 5.39
12/31/12 $2.209 Trillion $11.37
12/31/13 $2.128 Trillion $15.60
Paul A. Samakow is an attorney licensed in Maryland and Virginia, and has been practicing since 1980. He represents injury victims and routinely battles insurance companies and big businesses that will not accept full responsibility for the harms and losses they cause. He can be reached at any time by calling 1-866-SAMAKOW (1-866-726-2569), via email, or through his website. He is available to speak to your group on numerous legal topics.
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