The U.S. Justice Department is suing Bank of America for allegedly misleading investors who bought some $850 million of mortgage-backed securities, bonds that are backed by a huge pool of mortgage loans. The government is accusing the country’s second-largest lender of hiding information about how risky some of the loans were.
The August 6 court filings claim Bank of America ignored its own standards back in 2007 when it originated a number of jumbo loans, the kind of mortgages usually taken out on high-end homes. The bank then packaged and sold the loans to investors as prime mortgage-backed securities, which were supposed to have a lower risk than the sub-prime loans that started the financial crisis. But, according to the Justice Department, in some cases, Bank of America did not have proper documentation for the mortgages. The suit claims investors have lost $70 million from the fraud and could lose $50 million more. The company denies it hid any information, saying in a statement the investments performed better than similar mortgage-backed securities from other institutions.