NEW YORK (Reuters) – Bank of America Corp has long argued to enforcement officials that it was being forced to pay for the sins of companies it acquired in the crisis, but on Thursday the bank admitted at least some of its mortgage problems happened on its watch.
In a statement of facts that the bank agreed to as part of the settlement, Bank of America said it had sought government insurance on mortgages that did not qualify for that coverage from May 1, 2009, after the crisis had subsided. The bank failed to take basic steps that the Federal Housing Administration demanded banks to take, including verifying borrowers’ income, it said.
Those missteps came after the bank had acquired Countrywide Financial Corp and Merrill Lynch & Co, the two companies responsible for most of the mortgage bond problems the bank admitted to.
The bank agreed to an $800 million settlement with the U.S. Department of Housing and Urban Development for those loans, which it had sought to bundle into bonds guaranteed by the FHA. That represents a relatively small portion of Bank of America’s overall $16.65 billion settlement with authorities announced on Thursday.
But the facts the bank admitted to underscore that not all of its mortgage problems were inherited. A Bank of America spokesman declined to comment.
In Bank of America’s negotiations with the Justice Department over the broad mortgage settlement, the bank said it should have to pay less than what authorities were seeking because it was not directly responsible for most of the mortgage securities that soured, according to sources familiar with the matter [ID: nL2N0P1028]. It said it inherited much of that legal risk from Countrywide and Merrill Lynch.
“We didn’t originate the loans for Countrywide, but we ended up paying for them because we had an obligation,” Chief Executive Brian Moynihan said at the bank’s annual meeting for shareholders in May.
To be sure, most of the mortgage bonds that the bank had problems with came from Countrywide, which Bank of America bought in July 2008. Countrywide issued about three-quarters of the $965 billion of mortgage bonds that Bank of America, Countrywide, and Merrill Lynch combined issued between 2004 and 2008, according to company filings. Countrywide was also responsible for three-quarters of the defaults and severe delinquencies on those loans, Bank of America said in its annual filing.
The bank admitted to specific problem loans, including a case where Bank of America refinanced a Countrywide mortgage for $156,461 into an FHA-backed mortgage bond. The home was a 27-year-old mobile home, and the borrower was delinquent on the original mortgage. Furthermore, the borrower was “improperly permitted” to roll $12,623 of credit card and auto debt into the new FHA loan, on which he only made two payments before defaulting, according to the statement of facts.
In another, the bank extended a $314,204 FHA mortgage to a borrower with no history of paying rent without verifying his income. The borrower ended up defaulting after four payments.