Bank Of America 'Significantly Hindered' Federal Investigation, U.S. Official Says
NEW YORK -- Bank of America, the largest U.S. bank by assets, "significantly hindered" a federal investigation into the firm's faulty foreclosure practices on potentially billions of dollars worth of taxpayer-backed loans, a federal auditor told an Arizona court.
The bank withheld key documents and data, prevented investigators from interviewing bank employees or asking certain questions, and was slow to provide information, according to a June 1 declaration by William W. Nixon, a fraud examiner and assistant regional inspector general for audit for the U.S. Department of Housing and Urban Development inspector general's office.
Due to Bank of America's "reluctance," Nixon resorted to asking the Justice Department to issue so-called civil investigative demands last December to compel testimony, a "less effective" means of carrying out its investigation, Nixon said. His office can't compel testimony on its own.
Bank of America, the largest handler of home loans in the U.S., threw up roadblocks to the investigation, Nixon said, like preventing his team from performing a "walkthrough" of the bank's documents unit.
The bank also failed to fully comply with subpoenas issued by Nixon's team. HUD's internal watchdog issued two subpoenas requesting documents and information, and what was returned was incomplete, had conflicting information, and in some cases, the bank provided excerpts of documents rather than the complete record.
In one instance, Bank of America supplied only a third of what the watchdog requested.
Federal investigators found one bank employee who signed more than 75,000 foreclosure documents over the two-year period. If the employee worked every day during those two years, that amounts to about 103 documents signed per day, or one every five minutes.
Another Bank of America employee was found to have signed nearly 47,000 foreclosure documents over the examined period, which amounts to about 64 documents signed per day, or one every seven minutes.
In another instance, Nixon's team waited three days for the bank to fulfill a request for "basic information." Though the document was requested on a Friday and given to investigators the following Monday, what the bank provided "prompted several additional questions that needed answering," Nixon said.
The bank's actions "impaired our review because they prevented us from measuring the impact of Bank of America's foreclosure practices," Nixon said.
The review was part of the inspector general's confidential investigation into the bank's practices when processing foreclosures on loans guaranteed by taxpayers through the Federal Housing Administration, a unit of HUD. The months-long probe examined Bank of America's compliance with local foreclosure laws after public reports last autumn indicated widespread use of faulty documents, defective practices, and abuse of homeowners.
The Huffington Post first reported on the investigation's findings on May 16. The reports compiled on the nation's five largest mortgage servicers -- Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial -- accused the companies of violating the False Claims Act and defrauding taxpayers in their handling of foreclosures on homes purchased with government-backed loans. The findings were referred to the Justice Department for possible prosecution.
The audits concluded that the banks effectively cheated taxpayers by presenting the Federal Housing Administration with false claims: They filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.
Nixon's document, filed June 8 with the Maricopa County Superior Court, is the first public evidence of the investigation.
The audits, like Nixon's court declaration, are now being used in litigation proceedings and settlement negotiations to resolve claims of widespread foreclosure abuse. A coalition of Obama administration agencies and attorneys general from all 50 states are embroiled in discussions with the five biggest mortgage servicers to resolve the claims. If an agreement is reached, the banks are expected to pay at least $20 billion.
Obama administration officials want to wrap up the discussions quickly. Pressure is being placed on several states involved in the inquiry to come to agreement, participants involved in the discussions said.
Bank of America services more than 3.8 million loans guaranteed by the Federal Housing Administration, according to Nixon's filing with the court. His team, which he was assigned to lead last October, examined the bank's claims to FHA for reimbursement on FHA-guaranteed loans that defaulted and entered foreclosure proceedings.
From October 2008 to September 2010, Bank of America submitted 40,219 claims to the federal agency, requesting $5.7 billion in taxpayer cash. Of that, about 86 percent of the claims, worth nearly $5 billion, were for loans previously serviced by Countrywide Financial, the troubled mortgage giant that Bank of America purchased in 2008.
Taxpayers could be on the hook for unknown billions in fraudulent losses.
The watchdog's final report was "prepared in light of possible future litigation," Nixon said, raising the specter of additional legal headaches for the nation's largest bank.
READ the two documents:
U.S. Official Accuses Bank of America of "Significantly" Hindering Federal Investigation (1) -
U.S. Official Accuses Bank of America of "Significantly" Hindering Federal Investigation (2) -
Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 917-267-2335.
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First Posted: 06/13/11 10:20 PM ET Updated: 08/13/11 06:12 AM ET