A settlement has been reached in a whistleblower class action lawsuit brought against Bank of America who is accused of selling billions of dollars of Residential Mortgage-Backed Securities (RMBS) without disclosing to investors key facts about the quality of the securitized loans.
The $16.65 billion resolution is broken down as follows;
- $10 billion will be paid to settle federal and state civil claims by various entities related to RMBS, collateralized debt obligations and other types of fraud.
- Bank of America will pay a $5 billion civil penalty to settle the Justice Department claims under FIRREA.
- Approximately $1.8 billion will be paid to settle federal fraud claims related to the bank’s origination and sale of mortgages.
- $1.03 billion will be paid to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC).
- $135.84 million will be paid to settle claims by the Securities and Exchange Commission.
- $300 million will be paid to settle claims by the state of California.
- $45 million to settle claims by the state of Delaware.
- $200 million to settle claims by the state of Illinois.
- $23 million to settle claims by the Commonwealth of Kentucky.
- $75 million to settle claims by the state of Maryland.
- $300 million to settle claims by the state of New York.
The bank has conceded that it originated risky mortgage loans and made misrepresentations about the quality of those loans to Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).
This settlement also resolves the complaint filed against Bank of America in August 2013 by the U.S. Attorney’s Office for the Western District of North Carolina concerning an $850 million securitization. Bank of America acknowledges that it marketed this securitization as being backed by bank-originated “prime” mortgages that were underwritten in accordance with its underwriting guidelines. Yet, Bank of America knew that a significant number of loans in the security were “wholesale” mortgages originated through mortgage brokers and that based on its internal reporting, such loans were experiencing a marked increase in underwriting defects and a noticeable decrease in performance. Notwithstanding these red flags, the bank sold these RMBS to federally backed financial institutions without conducting any third party due diligence on the securitized loans and without disclosing key facts to investors in the offering documents filed with the SEC. A related case concerning the same securitization was filed by the SEC against Bank of America and is also being resolved as part of this settlement.
