Federal investigators are looking into whether Bank of America violated requirements of a U.S. government housing program. The civil division of the U.S. Attorney’s Office for the Eastern District of New York is currently investigating Bank of America’s compliance with the rules of the Federal Housing Administration’s Direct Endorsement Program.
According to The Chicago Tribune, the bank’s annual report filed with the U.S. Securities and Exchange Commission, states that government authorities in North America, Europe and Asia are also investigating its practices in foreign exchange markets as part of a broader industry inquiry.
As of late, the FHA program has been at the center of cases brought by U.S. Attorney Preet Bharara, who is Lynch’s counterpart in Manhattan. Back in 2012, Citigroup agreed to pay $158.3 million and Deutsche Bank AG agreed to pay $202.3 million to settle cases, while a third case is pending against Wells Fargo & Co. Under the program, mortgage lenders have the authority to approve home loans that the federal government insures without any further review. So, if it is later determined that the lender did not follow FHA underwriting standards, the FHA can be reimbursed for any losses.
In early February, JPMorgan Chase & Co agreed in to pay $614 million to settle claims that it defrauded the FHA and the Department of Veterans Affairs by making sub-standard mortgage loans. In 2012, Bank of America agreed to $1 billion in payments to the federal government to settle claims that its Countrywide home loan subsidiary made FHA-insured mortgages to unqualified borrowers. Bank of America raised its estimate of litigation costs to $6.1 billion above what it set aside.
In addition, the bank has disclosed an agreement with Warren Buffett’s Berkshire Hathaway that could give it an additional $2.9 billion in capital. Berkshire acquired a special class of preferred stock in Bank of America in 2011 as part of a larger $5 billion investment.
Under international regulatory capital rules, that preferred stock would not have counted toward the bank’s capital ratios. Instead, in exchange for agreeing not to redeem the stock for five years, Berkshire agreed to change the terms of the investment so that it counts for Tier 1 capital purposes.
An amendment for this deal will be put to a vote by shareholders at the bank’s annual meeting this May.
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