The staff of a United States attorney’s office plans to recommend that the Justice Department sue Bank of America over the packaging and selling of mortgage-related investments before the financial crisis of 2008, the firm disclosed in a regulatory filing on Wednesday.
In its latest quarterly report, Bank of America also said that the staff of New York’s attorney general, Eric Schneiderman, has indicated that it will also file suit against the firm’s Merrill Lynch subsidiary as part of an investigation into the securitization of home loans.
The bank said that it had increased its estimate of potential losses from lawsuits and regulatory matters to $5.1 billion, up from $2.8 billion last quarter.
A spokesman for Bank of America declined to comment.
The looming threat against Bank of America comes as another firm, JPMorgan Chase, is poised to strike a settlement with the Justice Department over its mortgages practices. On Friday, JPMorgan worked out a separate deal with the Federal Housing Finance Agency that will allow the bank to move beyond one of its costliest mortgage-related headaches.
In the agreement with the housing regulator, which oversees Fannie Mae and Freddie Mac, JPMorgan agreed to pay $5.1 billion.
At issue in that case was whether JPMorgan misled the housing regulator about the riskiness of mortgages sold in the run-up to the financial crisis.
The $13 billion deal with JPMorgan with the Justice Department could embolden the agency as it pursues other banks over dubious mortgage practices. The case against JPMorgan is centered on a law that extends the deadline for filing certain financial fraud cases to 10 years from five.
Under the same law, a federal jury found Bank of American liable in a mortgage case last week.
In that case, federal prosecutors in Manhattan accused Bank of America of selling defective mortgages, part of a broader effort by the government to hold banks accountable for their role in the financial crisis, which plunged the housing market to its lowest depths since the Great Depression.
Much of Bank of America’s headaches arise from Countrywide Financial, the troubled lender that the firm bought in 2008 for $4 billion. Since purchasing the business, the bank has paid nearly $50 billion in fines and settlements, according to analysts estimates.
The bank is also facing a raft of investigations into its mortgage practices. In August, federal prosecutors in North Carolina sued Bank of America, accusing it of understating the risks of the mortgages underpinning some $850 million in securities.
