Your Update on Blockbuster Bank Investigations
According to the U.S. Department of Housing and Urban Development (HUD), Bank of America (NYSE:BAC) “significantly hindered” a federal review of its foreclosures on loans insured by the Federal Housing Administration (FHA) by being slow to provide data necessary for the investigation, not allowing HUD to interview employees, and ultimately providing incomplete information. Bank of America is also included in a 50-state probe of loan-packaging practices at banks and bond insurers, led by New York AG Eric Schneiderman.
Schneiderman’s office has also requested information from additional institutions, including New York Mellon Corp. (NYSE:BK) and Deutsche Bank (NYSE:DB), both of which act as trustees for mortgage-bond trusts. Schneiderman’s New York office will be sharing their information with Delaware. Both states are investigating the way mortgages were pooled and securitized during and in the years leading up to the recession, focusing particularly on trustee banks.
Deutsche Bank is already being sued by the U.S. Justice Department for having lied while arranging FHA insurance on mortgage loans and then profiting from the sale of government-insured mortgages. Bank of America submitted $5.7 billion worth of FHA claims between Oct. 1, 2008 and Sept. 30, 2010, about 86% of which were for loans previously serviced by Bank of America’s 2008 acquisition, Countrywide Financial Corp.
Bank of America currently faces $27 billion of housing-related losses between now and 2013 due to increasing regulation and slowing economic recovery, and that’s in addition to the $46 billion loss they have booked so far. About 44% of Bank of America’s total lending is related to housing, as opposed to 34% for its competitors, leaving it much more vulnerable to investigations into mortgage practices. Still, Bank of America isn’t the first, and certainly won’t be the last bank under scrutiny in both state and national investigations.