SEC files suit against Bank of America over mortgage securities

The U.S. government is mounting a civil case against Bank of America over claims it defrauded investors by selling mortgage-backed securities "riddled" with risk without informing buyers.

The Securities and Exchange Commission filed suit in U.S. District Court Tuesday, claiming that the bank put together an $855 million mortgage-backed offering filled with risky mortgages that were highly delinquent or in default, and then failed to tell all investors about those risks when selling it.

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The Justice Department announced parallel civil charges against the bank as well.

“In its own words, Bank of America ‘shifted the risk’ of loss from its own books to unsuspecting investors, and then ignored its responsibility to make a full and accurate disclosure to all investors equally,” said George S. Canellos, co-director of the SEC’s enforcement division. “This is one in a long line of RMBS [Residential mortgage-backed security]-related enforcement actions brought by the SEC to hold entities accountable for wrongdoing connected to the financial crisis.”

The SEC claimed the bank marketed the offering as full of mortgages that met the bank's guidelines. But in reality, those mortgages were put together with ineligible appraisals, unsupported statements of income and signs of mortgage fraud. Important ratios like debt-to-income were "routinely miscalculated" and then provided to the public, the agency added.

When all was said and done, that offering lost 8.05 percent of its value through June 2013, totaling losses of nearly $70 million so far with anticipated future losses of roughly $50 million.

Bank of America announced in a regulatory filing earlier this month it expected the civil charges were on the way.

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