United States Justice Department Sues Bank of America Over Faulty Mortgage Securities

Bank of America’s reputation has been very lackluster as of late. In early August, the Justice Department sued them for losses of about $850 million in mortgage securities. They didn’t properly inform customers about the risks of the mortgages they were purchasing. Their employees were also encouraged to not properly handle customers and their issues.

Since the financial crisis began, Bank of America has had to deal with a myriad of mortgage-related losses and litigation from different sources. Many of their problems stem from their 2008 acquisition of Countrywide Financial.

The loans they misrepresented were termed as prime jumbo mortgages – an example of this kind of loan would be a loan worth $417,000 for a single unit dwelling. The problem was that there was not enough focus on subprime loans.

Their standards of service were pretty lackluster and this came primarily from the upper branches of the bank. Employees were encouraged to gloss over the loans homeowners applied for and not to actually study them thoroughly to look for problems in the wording or other issues. Bank of America was not honest about what kind of loans they were selling. In the end, five investors lost a total of $100 million due to their mistakes.

The lawsuit also concerns the fact that many of these loans were from mortgage brokers and from bad channels; they were almost like vials of poison.

Bank of America also badly impacted everyday borrowers, particularly those who were self-employed. They lost a lot of money because many couldn’t make their mortgage payments on time due to the type of loans sold to them.

Even the bank’s own security traders questioned the quality of the loans, which is a major problem for Bank of America. Maybe they need to reconsider their mortgage lending practices and take the customers’ needs into account.