(Reuters)
- Bank of America Corp may have a new mortgage problem on its plate,
saying on Tuesday that federal investigators are looking into whether
the bank violated requirements of a U.S. government housing program.
The second-largest U.S. bank said the civil division of
the U.S. Attorney's Office for the Eastern District of New York in
Brooklyn is investigating Bank of America's compliance with the rules of
the Federal Housing Administration's Direct Endorsement Program. Bank
of America made the disclosure in its annual report filed on Tuesday
with the U.S. Securities and Exchange Commission.
Spokesmen for Bank of America
and U.S. Attorney Loretta Lynch declined to provide additional details
on the probe.
The Charlotte, North Carolina-based
bank also said in the filing that government authorities in North
America, Europe and Asia are investigating the bank's conduct and
practices in foreign-exchange markets as part of a broader industry
inquiry.
The FHA program has been at the center of
cases brought by U.S. Attorney Preet Bharara, who is Lynch's counterpart
in Manhattan. In 2012, Citigroup Inc 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 such as Bank of America are given
the authority to approve home loans that the federal government then
insures without further review. If the mortgage defaults and it is later
determined that the lender did not follow FHA underwriting standards,
the FHA can demand to be reimbursed for any losses.
JPMorgan Chase & Co agreed in early February 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
February 2012, Bank of America agreed to $1 billion in payments to the
federal government to settle separate claims that its Countrywide home
loan subsidiary made FHA-insured mortgages to unqualified borrowers.
That settlement covered loans made before April 30, 2009.
Bank of America raised its estimate of overall litigation costs
to as much as $6.1 billion above what it has already set aside, up from
an estimate of $5.1 billion at the end of the third quarter, according
to its SEC filing.
GETTING A CAPITAL BOOST
The bank also disclosed in the filing an agreement with
Warren Buffett's Berkshire Hathaway Inc 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 U.S. regulators finalized in 2013, that preferred stock would
not have counted toward the bank's capital ratios.
But in exchange for agreeing not to redeem the preferred stock for five
years, Berkshire agreed to change the terms of the investment so that
it counts for Tier 1 capital purposes. The new terms include a fixed
annual dividend of 6 percent and the removal of a provision that would
have let Berkshire receive additional payments if the bank missed a
dividend.
The deal is subject to shareholder
approval. An amendment will be put to a vote at the bank's annual
meeting in May.
(Reporting by Peter Rudegeair in
New York; Additional reporting by Nate Raymond, Jonathan Stempel and
Karen Freifeld in New York; Editing by Andrew Hay, Lisa Shumaker and Jan
Paschal)
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