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BofA Faces More U.S. Claims on Jumbo Mortgage Deals, CDOs

Bank of America Corp. said federal and state agencies plan to press more civil claims tied to mortgage and debt offerings, signaling the firm faces another round of legal battles tied to home loans and underwriting.

The U.S. Department of Justice and Securities and Exchange Commission may bring civil claims on securitizations backed by jumbo mortgages, the bank said yesterday in a regulatory filing. The SEC also could take action on Merrill Lynch’s sales of collateralized debt obligations and New York’s attorney general may bring claims against Merrill over residential mortgage-backed instruments, the firm said.

A new set of lawsuits could hinder Chief Executive Officer Brian T. Moynihan’s effort to end fallout from the 2008 credit crisis and purchases of Countrywide Financial Corp. and Merrill Lynch & Co. The bank has already spent more than $45 billion on litigation, settlements and refunds to investors tied to shoddy mortgages and servicing.

“It’s like they’ve stepped in something that they can’t get off their foot; they’re having a hard time shaking off the activities that helped cause the financial crisis,” said Mark Williams, a former Federal Reserve bank examiner who teaches risk management at Boston University.

Photographer: Davis Turner/Bloomberg

A man sits next to a fountain outside of the Bank of America Corp. headquarters in Charlotte, North Carolina. The second biggest U.S. lender by assets has said it received subpoenas and other information requests regarding mortgage securities and collateralized debt obligations (CDOs) created during the housing boom. Close

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Photographer: Davis Turner/Bloomberg

A man sits next to a fountain outside of the Bank of America Corp. headquarters in Charlotte, North Carolina. The second biggest U.S. lender by assets has said it received subpoenas and other information requests regarding mortgage securities and collateralized debt obligations (CDOs) created during the housing boom.

Making Progress

Bank of America, the second-biggest U.S. lender by assets, has said it received subpoenas and other information requests regarding mortgage securities and CDOs created during the housing boom. Jumbo mortgages are loans larger than those allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas.

The lender fell 0.9 percent to $14.82 at 10:06 a.m. New York trading, leading decliners in the 24-company KBW Bank Index. The firm is in discussions with regulators “to explain why the threatened civil charges are not appropriate,” the Charlotte, North Carolina-based firm said in the filing.

Moynihan is cutting expenses amid tepid revenue growth. A $1 billion drop in noninterest spending in the second quarter was driven by litigation costs that fell by half to $471 million, helping the bank post a 63 percent rise in profit. The bank spent $4.2 billion on litigation for all of last year and $5.6 billion in 2011, according to regulatory filings.

“We’ve made progress resolving many issues and will continue to work to address any outstanding matters,” said Larry DiRita, a Bank of America spokesman. Florence Harmon of the SEC, Adora Jenkins of the Justice Department and Damien LaVera, a spokesman for New York Attorney General Eric Schneiderman, declined to comment.

Task Force

Regulators may be pushing for action as a five-year statute of limitations on cases approaches. SEC investigators have also signed so-called tolling agreements with executives and banks to extend the timeframe on those inquiries.

Schneiderman, who co-leads a task force created to investigate misconduct in the bundling of mortgage loans into securities, accused Credit Suisse Group AG of deceiving buyers of the investments in a complaint he filed in November. Zurich-based Credit Suisse said at the time that Schneiderman’s claim was baseless and that the company would defend itself in court.

UBS AG, Switzerland’s largest bank, is poised to settle SEC claims that it misled investors in a 2007 mortgage-bond deal that soured as housing prices collapsed, a person with knowledge of the matter said this week. The bank will pay less than $60 million, the person said.

There has been a string of cases involving CDOs beginning with an SEC lawsuit against Goldman Sachs Group Inc. in 2010. A New York jury found Fabrice Tourre, the Goldman Sachs vice president who worked on the deal known as Abacus, liable on six of seven claims yesterday.

In a separate matter, Bank of America said it will record a $1.1 billion charge to income-tax expense stemming from a 3 percent reduction in the U.K. corporate tax rate to 20 percent. While this will benefit the company in future years, the lower rate also affects the value of deferred-tax assets, according to the filing.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net; David Scheer at dscheer@bloomberg.net

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