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 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.
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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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