SEC v. Bank of America, N.A.; Banc of America Mortgage Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 3:13-cv-447, Western District of North Carolina (Jan. 1, 2013) — Complaint

IN THE UNITED STATES DISTRICT COURT 
FOR THE WESTERN DISTRICT OF NORTH CAROLINA 
CHARLOTTE DIVISION 
 
 
SECURITIES AND EXCHANGE 
COMMISSION, 
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Plaintiff, 
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 Civil Action No. 3:13-cv-447 
v. : 
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BANK OF AMERICA, N.A., BANC OF 
AMERICA MORTGAGE SECURITIES, 
INC., and MERRILL LYNCH, PIERCE, 
FENNER & SMITH, INC. f/k/a BANC 
OF AMERICA SECURITIES LLC,  
 
Defendants. 
:
:
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 :  
 
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF 
 
 Plaintiff, Securities and Exchange Commission (the “Commission”), files its 
complaint and alleges that: 
OVERVIEW 
1. This case involves violations of the federal securities laws by Bank of 
America, N.A. (“BANA”), its wholly owned subsidiary, Banc of America 
Mortgage Securities, Inc. (“BOAMS”), and its affiliate, the then Banc of America 
Securities LLC (“BAS”), now Merrill Lynch, Pierce, Fenner & Smith, Inc. 
(collectively, the “Bank of America Entities” or “Defendants”). 

 
 
 
 
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2. BANA, a wholly owned subsidiary of Bank of America Corporation 
(“BAC”), originated more than $90 billion in mortgage loans during 2007.  BAC 
maintained some of these mortgage loans on its own corporate investment book 
and bundled other mortgage loans into securities, which are commonly known as 
residential mortgage-backed securities (“RMBS”).  These RMBS were then 
offered and sold to investors through entities like BOAMS.  
3. The bundling of mortgages into RMBS and selling them to investors 
was described in BAC’s public filings at the time as its “originate to distribute 
strategy.”   
4. The Bank of America Entities misrepresented and omitted certain 
material facts regarding an RMBS, backed by more than $855 million of 
residential mortgages, known as BOAMS 2008-A, that was offered and sold in 
2008.   
5. Specifically, in filings with the Commission, the Bank of America 
Entities portrayed BOAMS 2008-A as backed by “prime” mortgage loans, 
meaning that those loans had a higher credit quality than other types of mortgage 
loans, such as “subprime” or “Alt-A.” Because BOAMS 2008-A was portrayed as 
being backed by prime mortgages, it attracted investors looking for safe, 
conservative investments.   

 
 
 
 
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6. In fact, an unprecedented portion of the mortgage loans backing the 
security had been originated through mortgage brokers unaffiliated with the Bank 
of America Entities (referred to as the “wholesale channel” or “wholesale loans”). 
7. By the time BOAMS 2008-A was being offered and sold to investors, 
the Bank of America Entities knew that wholesale channel loans were significantly 
more likely than loans originated by BANA employees to be subject to material 
underwriting errors, become severely delinquent, fail early in the life of the loan, 
or prepay – all of which negatively impact investors in RMBS. 
8. By the time the BOAMS 2008-A was being offered and sold, the then 
CEO of BAC    had referred to wholesale loans as “toxic waste” and BANA had 
closed its wholesale channel. 
9. Although required to disclose this information under Regulation S-K 
and subpart Regulation AB of the Securities Act of 1933 (“Securities Act”), the 
Bank of America Entities failed to disclose the large concentration of wholesale 
loans as well as the substantial risk the concentration presented to investors.   
10. In addition, the filings with the Commission and the loan tapes 
provided to investors and rating agencies misrepresented that the mortgage loans 
backing BOAMS 2008-A were underwritten in accordance with BANA’s 
guidelines.  In fact, the Bank of America Entities knew or should have known that 

 
 
 
 
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a   large percentage of the mortgage loans had significant deviations from BANA’s 
guidelines, such as ineligible appraisals or falsified borrower income, and that they 
were not eligible for inclusion in BOAMS 2008-A. 
11. BAS also provided investors and the various rating agencies that rated 
RMBS with documents, known as loan tapes, that provided the key characteristics 
of the underlying mortgages.  The loan tapes provided for BOAMS 2008-A 
misrepresented material facts about the underlying mortgages.  For example, the 
loan tapes misrepresented debt-to-income (“DTI”) and original combined loan-to-
value (“OCLTV”) ratios of the mortgages backing BOAMS 2008-A.  These 
misstated ratios within the loan tapes falsely portrayed the mortgage loans, and 
thus BOAMS 2008-A, as less risky.  BOAMS publicly filed with the Commission 
certain of these loan tapes containing material misrepresentations. 
12. As a result of the misstatements and omissions, the Bank of America 
Entities violated Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 
77q(a)(2) & 77q(a)(3)]. 
13. BAS and BOAMS also violated Section 5(b)(1) of the Securities Act 
[15 U.S.C. § 77e(b)(1)] by failing to publicly file with the Commission—and 
thereby make accessible to all investors—copies of loan tapes containing 

 
 
 
 
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information about the channel of origination for the loans underlying BOAMS 
2008-A that were disclosed only to select investors. 
14. BAS and BOAMS have engaged and, unless restrained and enjoined 
by this Court, will continue to engage in acts and practices that constitute and will 
constitute violations of Sections 5(b)(1), 17(a)(2), and 17(a)(3) of the Securities 
Act [15 U.S.C. §§ 77(e), 77q(a)(2) & 77q(a)(3)].   
15. BANA has engaged and, unless restrained and enjoined by this Court, 
will continue to engage in acts and practices that constitute and will constitute 
violations of Sections 17(a)(2), and 17(a)(3) of the Securities Act [15 U.S.C. §§ 
77q(a)(2) & 77q(a)(3)]. 
JURISDICTION AND VENUE 
16. The Commission brings this action pursuant to Section 20 of the 
Securities Act [15 U.S.C. § 77t] to enjoin Defendants from engaging in the 
transactions, acts, practices, and courses of business alleged in this complaint, and 
transactions, acts, practices, and courses of business of similar purport and object, for 
disgorgement,  civil penalties and for other equitable relief.  
17. This Court has jurisdiction over this action pursuant to Sections 20(b), 
20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d) and 77v(a)]. 

 
 
 
 
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18. Defendants, directly and indirectly, made use of the mails, and the 
means and instruments of transportation and communication in interstate 
commerce in connection with the transactions, acts, practices, and courses of 
business alleged in this complaint. 
19. Certain of the transactions, acts, practices, and courses of business 
constituting violations of the   Securities Act occurred in the Western District of 
North Carolina.  BANA’s and BOAMS’ principal place of business is in the 
Western District of North Carolina. 
20. Defendants, unless restrained and enjoined by this Court, will 
continue to engage in the transactions, acts, practices, and courses of business 
alleged in this complaint, and in transactions, acts, practices, and courses of 
business of similar purport and object. 
THE DEFENDANTS 
21. Bank of America, N.A. is a nationally chartered banking association 
headquartered in Charlotte, North Carolina.  BANA is a wholly owned subsidiary 
of BAC.  BANA is also an affiliate of BAS, which is also a wholly owned 
subsidiary of BAC.  BANA served as the originator, underwriter, and servicer for 
the entirety of the mortgage loans that comprised BOAMS 2008-A.  BANA is also 
the sponsor of BOAMS 2008-A.     

 
 
 
 
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22. Merrill Lynch, Pierce, Fenner & Smith Incorporated, as successor to 
BAS, is a Delaware corporation and a Commission-registered broker-dealer 
headquartered in New York, New York.  It is a wholly owned subsidiary of BAC 
and is liable as successor-in-interest by merger to BAS.  BAS was the sole 
underwriter for BOAMS 2008-A and was the primary entity structuring and 
documenting the transaction.  As the underwriter, BAS offered and sold interests in 
BOAMS 2008-A to investors.      
23. Banc of America Mortgage Securities, Inc. is a Delaware corporation 
headquartered in Charlotte, North Carolina.  BOAMS is a wholly owned subsidiary 
of BANA that has no business operations beyond offering RMBS and related 
activities.  BOAMS functioned as the depositor for BOAMS 2008-A. 
THE PROCESS FOR ORIGINATING AND 
SECURITIZING MORTGAGE LOANS 
 
24. For the year 2007, BANA originated $93.3 billion in first lien 
mortgage production.  BANA originated these mortgage loans either through its 
direct or wholesale channels.    
25. Direct channels involve a BANA employee working with the 
borrower, either th rough BANA’s website, at a BANA retail location such as a 
bank branch or over the phone, to complete the loan application package. 

 
 
 
 
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26. In the wholesale origination channel, the borrower works with an 
unaffiliated mortgage broker in completing the loan application package.  The 
mortgage broker is paid a fee upon closing of the loan. 
27. BAC maintained some of these mortgage loans on its own corporate 
investment book.  Through its subsidiaries, BAC bundled other mortgage loans 
into RMBS that were then offered and sold to investors through entities like 
BOAMS.  
28. The bundling of mortgages into RMBS and selling them to investors 
is known as “securitizing” the mortgages and was described in BAC’s public 
filings at the time as its “originate to distribute strategy.” 
29.  RMBS typically consisted of classes, referred to as tranches.  
Investors in RMBS received “certificates” representing an interest in a particular 
tranche of RMBS.  The certificates are fixed income securities that entitle their 
holders to a schedule of payments of principal and interest at a specified rate. 
30. Each tranche of RMBS had a different seniority in the priority of 
repayment and a different rate of interest.  RMBS were structured so that investors 
who owned certificates with a higher credit rating and a higher priority of 
repayment received a lower interest rate than certificates with a lower credit rating 
and a lower priority of repayment.   

 
 
 
 
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31. RMBS can incur losses if a sufficient number of borrowers on the 
underlying mortgage loans default and the liquidation of the collateral securing 
those mortgage loans does not generate sufficient cash to cover the outstanding 
loan balances.  Losses are typically borne first by the subordinate tranches.  If the 
losses are sufficiently large, the entire principal balance of the subordinate tranche 
could be written off, resulting in no further payments to certificate-holders who 
invested in that tranche of RMBS. 
32. Because this structure increased the risk to subordinate tranches, the 
quality of the mortgages underlying RMBS played a particularly significant role in 
determining the price investors would pay for an interest in those tranches.    
   
BOAMS 2008-A 
33. BOAMS filed the prospectus supplement for BOAMS 2008-A with 
the Commission on January 29, 2008.  The offering was originally scheduled for 
December 2007, but was delayed due to a slowdown in the securitization markets.   
34. A majority of the certificates for BOAMS 2008-A were sold in a 
public offering that corresponded with the public filing of the offering documents.  
The remaining certificates were sold, in part, through private placements utilizing 
the same publicly filed information.  Those private placements were effected over 
the months following the public offering. 

 
 
 
 
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35. BOAMS 2008-A was an RMBS backed by 1,191 residential mortgage 
loans, originated between mid-July and late November 2007, with an unpaid 
principal   balance (“UPB”)   of approximately $855 million.  All of these mortgages 
were “Jumbo,” meaning that the initial principal balance exceeded $417,000. 
36. The principal and interest payments on these mortgages were to flow 
through to the investors in the BOAMS 2008-A RMBS.  
37. BANA originated each of the 1,191 loans in the BOAMS 2008-A 
RMBS through either its direct or wholesale channels. 
38. BOAMS served as the depositor in the BOAMS 2008-A transaction.  
In that role, BOAMS acquired from BANA the 1,191 loans that BANA had 
originated and then “deposited” them into the BOAMS 2008-A RMBS.  BOAMS 
was the issuer of that RMBS. 
39. While the BOAMS 2008-A transaction was being structured, BAS 
marketed the transaction to potential investors and received commitments to 
purchase a portion of the certificates from certain investors. 
40. BOAMS then sold the certificates, representing interests in the various 
tranches of BOAMS 2008-A, to BAS.  BAS then sold the certificates to investors.  
41. In connection with the offering of the interests in BOAMS 2008-A to 
investors, BOAMS filed with the Commission a prospectus, prospectus 

 
 
 
 
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supplement, free writing prospectuses, a pooling and servicing agreement (“PSA”) 
and related documents (collectively “the BOAMS 2008-A Offering Documents”).  
These documents disclose certain material facts about BOAMS 2008-A, as well as 
the mortgage loans backing BOAMS 2008-A. 
42. A prospectus is a disclosure document that describes a security to 
investors. 
43. A prospectus supplement contains additional information about the 
security that may not be disclosed in the prospectus. 
44. A free writing prospectus is a written communication, including an 
electronic communication, that constitutes an offer outside the statutory 
prospectus. 
45. A pooling and servicing agreement describes how pooled loans will 
be serviced and sets forth how proceeds and losses from those loans will be 
distributed to investors in the securitization
. 
46. Beyond its role as underwriter and primary contact and information 
source for investors, BAS structured BOAMS 2008-A.  BAS employees were the 
primary drafters of the BOAMS 2008-A Offering Documents and loan tapes that 
were disseminated to investors and publicly filed with the Commission. 

 
 
 
 
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47. As described below, BAS provided various credit rating agencies with 
preliminary prospectuses and loan tapes so that those agencies could rate the 
certificates representing interests in BOAMS 2008-A that were offered and sold to 
investors.  Those documents contained inaccurate information. 
48. Substantially all of the certificates representing interests in BOAMS 
2008-A received the highest credit rating from various ratings agencies.  These 
high credit ratings were based in large part on the perceived quality of the 
underlying mortgage loans backing BOAMS 2008-A and indicated that the 
certificates were a   safe and conservative investment. 
49. The primary purchasers for the certificates were institutional investors 
that were required to purchase only securities that had the highest credit ratings.   
50. As of the June 2013 trustee report, BOAMS 2008-A had an 8.05% 
cumulative net loss rate, representing a loss of approximately $69 million – the  
greatest relative cumulative net loss rate of any comparable BOAMS securitization 
– and it continues to incur additional losses at a disproportionately advanced rate 
month over month.  It is anticipated that the future losses to the securitization will 
be approximately $50 million.  

 
 
 
 
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51. The subordinate or “B” tranches of BOAMS 2008-A have been 
completely written off as the result of borrower   defaults or prepayments of the 
underlying mortgage loans. 
52. By securitizing the mortgage loans into BOAMS 2008-A, the Bank of 
America Entities shifted the risk of loss of those mortgage loans from themselves 
to BOAMS 2008-A investors and thus avoided the losses incurred by the 
mortgages underlying BOAMS 2008-A.  
THE BANK OF AMERICA ENTITIES’ FRAUDULENT CONDUCT 
I. Undisclosed Risks Concerning Loans from the Wholesale Channel 
 
A. Unprecedented Concentration of Wholesale Loans 
 
53. The prospectus for BOAMS 2008-A incorporated by reference a 
BANA website containing performance information for prior securitizations 
involving “mortgage loans underwritten in accordance with [BANA’s] general 
underwriting standards” (information generally referred to as “Static Pool Data”). 
54. However, compared to prior RMBS offered and sold by BOAMS, 
BOAMS 2008-A had a disproportionately high level of wholesale loans. 
55. Specifically, BOAMS 2008-A was made up of 72% of wholesale 
loans in terms of UPB.  The prior RMBS sold by BOAMS in 2006 and 2007 and 
reflected in the Static Pool Data averaged only 41% UPB of wholesale loans.   

 
 
 
 
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56. When BOAMS 2008-A was offered and sold, channel concentration 
was a key metric used by rating agencies and many RMBS investors. 
57. The supplemental prospectus contained a statement advising investors 
that the Static Pool Data “may not be indicative of future performance” but 
claimed that any variance would be caused by factors beyond BANA’s control, 
such as variances in housing prices rather than a material difference in the 
composition of BOAMS 2008-A as compared to prior RMBS.  
58. Neither the BOAMS 2008-A Offering Documents filed with the 
Commission in connection with the offering of BOAMS 2008-A nor the Static 
Pool Data disclosed the disproportionately high level of wholesale loans 
underlying BOAMS 2008-A or the unprecedented nature of the concentration of 
wholesale loans in  BOAMS 2008-A as compared to previous BOAMS offerings. 
59. Only a few investors were provided with information identifying the 
wholesale channel concentration of BOAMS 2008-A, and the Bank of America 
Entities did not publicly disclose the wholesale channel information.  As a result, 
not all investors had access to the same information and not all investors, or 
members of the public, were aware of the disproportionate amount of wholesale 
channel loans included in BOAMS 2008-A in comparison to previous BOAMS 
offerings. 

 
 
 
 
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60. Moreover, even those investors who were provided with information 
about the wholesale channel concentration of BOAMS 2008-A were not told about 
the specific risks associated with the loans within BOAMS 2008-A. 
B. Specific Risks Associated with Wholesale Loans 
61. When BOAMS 2008-A was offered and sold, the Bank of America 
Entities knew that the expected performance for wholesale loans had declined and 
presented materially higher risks of (a) deviation from BANA underwriting 
guidelines (“underwriting risk”), (b) default, and (c) prepayment, when compared 
to direct channel loans.  
62. In fact, on July 19, 2007, the then BAC CEO stated in BAC’s Second 
Quarter 2007 earnings call that, compared to direct channel loans, broker sourced 
loans “tend[] to be toxic waste.” 
63. The prospectus filed with the Commission in connection with the 
offering of BOAMS 2008-A was substantially similar to the prospectuses that were 
filed in connection with prior RMBS offerings by the Bank of America Entities. 
64. The similarities between these prospectuses, coupled with the 
references in the BOAMS 2008-A Offering Documents to the Static Pool Data (i.e. 
loan performance in prior RMBS) as a potential indicator of the performance of the 
loans in the BOAMS 2008-A, misleadingly portrayed the risks associated with 

 
 
 
 
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BOAMS 2008-A to be substantially similar to prior RMBS offered and sold by the 
Bank of America Entities. 
65. Given the disproportionately high level of wholesale loans backing 
BOAMS 2008-A and the demonstrated problems associated with such loans, the 
Bank of America Entities knew that BOAMS 2008-A presented substantially 
greater risks than prior RMBS offered and sold by the Bank of America Entities.  
66. Despite each of the Bank of America Entities being on notice of risks 
related to underwriting, defaults and churning discussed below, they made no 
effort to disclose to investors how those risks might affect the overall risk and or 
performance of BOAMS 2008-A. 
i. Underwriting Risks 
 
67. As part of the mortgage loan origination process, originators such as 
BANA examine whether potential borrowers and the proposed loan product meet 
certain criteria or standards, referred to as underwriting guidelines, such as the loan 
amount compared to borrower income and the loan amount compared to the value 
of the property securing the loan.  These standards are used to evaluate the 
borrower’s ability to make the required principal and interest payments and the 
adequacy of the mortgage property as collateral for the mortgage loan.   

 
 
 
 
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68. Compliance with underwriting guidelines is a material fact for RMBS 
investors because it provides some assurance that the borrowers will not default on 
the mortgage loans and, if there is a default, the collateral will be sufficient to 
cover the mortgage loan balance. 
69. Mortgage loans that do not comply with underwriting standards are 
generally perceived as riskier.  In fact, a bond trader at BAS who traded 
subordinate interests in RMBS (the “BAS Bond Trader”) admitted that “he didn’t 
feel comfortable” including mortgage loans in the BOAMS 2008-A loan pool if 
those loans did not comply with BANA’s underwriting standards because those 
mortgage loans were riskier than mortgage loans that complied with BANA’s 
underwriting standards. 
70. “Underwriting risk” is the risk that a loan has a material or serious 
deviation from the originator’s underwriting standards. 
71. Mortgage loans originated through the wholesale channel present a 
higher underwriting risk than mortgage loans originated through direct channels.  
This is largely because the individuals responsible for wholesale channel loans, 
commonly referred to as mortgage brokers, have different financial incentives than 
a party affiliated with the originating institution. 

 
 
 
 
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72. Internal documents created by the Bank of America Entities shortly 
before the offer and sale of interests in BOAMS 2008-A confirm that loans 
originated through wholesale channels had significantly higher underwriting risks.  
Internal documents also show that there was a high correlation between mortgage 
loans that deviated from underwriting standards and mortgage loans that 
experienced delinquencies within a few months after origination. 
73. Specifically, BANA’s internal quality assurance group conducted 
monthly reviews of underwriting compliance by sampling and re-underwriting 
mortgage loan production.  The monthly quality assurance reports (“QARs”) 
prepared by the group were then circulated within BANA and to certain 
individuals involved in the RMBS program at BAS.  The QARs tracked, among 
other things, trends in “serious or critical underwriting exceptions” by mortgage 
origination channel. 
74. The QARs for the three most relevant months for the mortgage loans 
included within BOAMS 2008-A, September to November 2007, were circulated 
between November 19, 2007 and January 18, 2008.  During this key period, the 
QARs identified a more than doubling of “serious or critical underwriting errors” 
for wholesale-originated loans. 

 
 
 
 
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75. In fact, in the then most recent QAR distributed in January 2008, the 
exceptions for wholesale-originated loans had spiked such that it was evidencing 
16% serious or critical underwriting exceptions.  This contrasted with 7.6% serious 
or critical underwriting exceptions for all origination channels at BANA. 
76. Thus, at the time BOAMS 2008-A was being securitized with the 
greatest percentage of wholesale loans of any comparable offering, mortgage loans 
originated through wholesale channels were more than twice as likely to have 
serious or critical underwriting errors. 
77. BANA and BAS were aware of this risk when they were securitizing 
BOAMS 2008-A. 
78. The QARs were received and reviewed by, among others, a BANA 
employee who was also an officer and principal of BOAMS (the “BOAMS 
Principal.”)    
79. The BOAMS Principal was a Senior Vice President of BANA, who at 
all relevant times, had responsibility for reviewing the offering documents for 
BANA and managing the BOAMS’ filings with the Commission.  Specifically, the 
BOAMS Principal (a) assisted with mortgage loan securitizations, (b) reviewed 
and signed public filings for RMBS, including the offering documents for BOAMS 
2008-A and (c) was an agent of BAS responsible for investor relations. 

 
 
 
 
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80. Despite the BOAMS Principal and others at the Bank of America 
Entities being on notice of the significant increase in serious or critical exceptions 
documented in the monthly QARs, the BOAMS 2008-A Offering Documents 
contained no disclosure of the heightened risk of serious or critical underwriting 
exceptions for wholesale channel loans. 
81. The QARs were also regularly received by the managing director of 
BAS who was responsible for creating and supervising BAS’ RMBS program (the 
“BAS Managing Director”).
 The BAS Managing Director was a Senior Vice 
President of BANA.  The BAS Managing Director also was the president and 
Chief Executive Officer of BOAMS. 
82. At all relevant times, the BAS Managing Director was in charge of the 
BAS Mortgage Finance Group, responsible for the underwriting of BOAMS 2008-
A.  The BAS Managing Director had supervisory responsibility for structuring 
BOAMS 2008-A and for preparing the offering documents. 
83. Neither the BAS Managing Director, the BOAMS Principal, or 
anyone else involved with BOAMS 2008-A, took any steps to ensure or even 
inquire into whether any of the loans in BOAMS 2008-A had been reviewed by 
BANA’s quality assurance group.  
 

 
 
 
 
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ii. Higher Default Risk for Wholesale Loans  
 
84. Internal documents created by, and other information reviewed by, the 
Bank of America Entities also show that, around the time BOAMS 2008-A was 
being offered and sold, loans originated through wholesale channels had 
demonstrated a significantly higher risk of default than loans originated through 
direct channels.   
85. For example, by late 2007, the BAS Bond Trader had begun receiving 
an increase in inquiries and complaints from his customers suffering unexpectedly 
early incidences of default in recent BAS’ RMBS.  In response, the BAS Bond 
Trader undertook a performance analysis for recent BAS underwritten RMBS. 
86. On December 10, 2007, the BAS Bond Trader transmitted his initial 
findings to the BOAMS Principal, the BAS Bond Trader’s superiors at the RMBS 
desk at BAS and other BOAMS employees.  The email noted   the decline in the 
performance of the 2006 and 2007 vintages of BANA-originated loans that had 
been securitized in RMBS offerings.  Attached to the transmittal email was a 
spreadsheet listing the 170 loans that had first payment defaults, early payment 
defaults, and severe delinquencies. 
87. In that email, the BAS Bond Trader stated:  

 
 
 
 
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[P]erformance   of   [BANA]   originated   loans   has   declined   
sharply....   It   is   imperative   that   we   remain proactive   in   
researching  our  skyrocketing  delinquency  issues  and  resolve  
swiftly  and  efficiently.    We  have  been  doing  some  analysis  .  .  .  
into  all  BofA  originated  loans  that  were  securitized  by  [BANA  
and  BOAMS]  over  the  course  of  2007.    In  looking  at  the  pay 
histories  post  securitization,  what  has  become  apparent  is  a  
number   of   loans   with   questionable   payment   histories   that   
indicate possible instances of fraud. 
 
88. In response to that email, the BOAMS Principal acknowledged that 
“the performance of [recent BANA-originated mortgage loans] is worse than prior 
vintages.” 
89. In a December 10, 2007 email to a member of BANA’s quality 
assurance department, the BOAMS Principal acknowledged “the performance of 
[BANA-sponsored RMBS] deals is deteriorating at a rapid pace, we are attempting 
to find out the reason why so many loans are going [delinquent] so early in the 
deal’s life.”   
90. On January 15, 2008, shortly before the closing of the BOAMS 2008-
A offering, the BAS Bond Trader sent employees of BANA (again including the 
BOAMS Principal) and BAS an email following up on his December email to the 
same group.  This email updated the data contained in the BAS Bond Trader’s 
earlier email and provided a more detailed analysis. 

 
 
 
 
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91. In this more detailed analysis the BAS Bond Trader communicated 
that of the BANA originated loans securitized in 2007 with questionable payment 
histories, 77% of the loans with first and early payment defaults originated from 
the wholesale channel and 80% of the loans flagged as severely delinquent 
originated from the wholesale channel. 
92. In concluding his email, the BAS Bond Trader wrote that while he 
appreciated that the wholesale channel was now closed, BANA must accept 
responsibility for its underwriting and origination errors that were causing losses to 
RMBS investors:  
[T]he poorly originated product from 2007 still needs ownership 
for   the   origination   flaws   and   responsibility   for   the   poor   
performance  must  be  pushed  back  to  the  origination  side  of  the  
business.    The    pricing    provided    for    product    from    the    
securitization  side  of  the  business  was  never  intended  for  early  
payment  default  or  first  payment  default  loans.    The  “‘originate  
to distribute’ model is broken . . . . 
   
93. In response to these emails from the BAS Bond Trader, the BOAMS 
Principal launched an internal investigation of the loans identified by the bond 
trader.   
94. The internal investigation initially entailed a review of whether any of 
the loans identified on the trader’s spreadsheet had already been subjected to 
BANA’s regular internal quality assurance review. 

 
 
 
 
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95. Before the offering of BOAMS 2008-A closed, the BOAMS Principal 
learned from the initial steps of that internal investigation that BANA’s internal 
quality assurance group had previously sampled and reviewed 35 loans on the 
bond trader’s spreadsheet, and that the common element linking these loans was 
that the vast majority were originated through the wholesale channel. 
96. Despite the recognition by BOAMS Principal that the poor 
performance noted by the bond trader stemmed largely from loans originated 
through the wholesale channel, the BOAMS Principal did not evaluate whether the 
prospectus or other disclosure documents for BOAMS 2008-A should be revised 
so as to disclose the significant percentage of wholesale loans and the risks 
associated with those loans. 
97. Despite receiving both of the bond trader’s emails on January 15, 
2008, the BAS Managing Director did not ask anyone to perform any analysis 
whatsoever of the wholesale channel.  The BAS Managing Director did not request 
such an analysis despite the bond trader’s focus on the wholesale channel and the 
BAS Managing Director’s understanding that it would be necessary to conduct a 
much more focused analysis of the wholesale channel to determine if the wholesale 
channel was producing more severely delinquent loans, 

 
 
 
 
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98. The BAS Managing Director also did not evaluate whether the 
problems with wholesale loans identified by the BAS Bond Trader warranted a 
revision of the BOAMS 2008-A disclosure documents. 
99. Reports created and distributed by BANA for 2007 mortgage loan 
originations (“Performance Reports”) also showed that mortgage loans originated 
though the wholesale channel in the latter half of 2007 (i.e. the same period as the 
mortgage loans in BOAMS 2008-A were originated) were performing substantially 
worse than direct channel loans originated during the same time.   
100. The Performance Reports, among other things, tracked the number of 
mortgages originated by BANA in a particular quarter that had ever been 90 or 
more days delinquent (an “Ever 90” delinquency) during a particular quarter. 
101. The BOAMS Principal and BAS Managing Director had access to and 
regularly reviewed these Performance Reports. 
102. The Performance Report for the fourth quarter of 2007 was available 
to the BOAMS Principal and BAS Managing Director in January 2008, prior to the 
closing of the BOAMS 2008-A offering. 
103. That report showed that the percentage of wholesale loans originated 
in the third quarter of 2007 that experienced an Ever 90 delinquency within the 
first three months after origination was more than double the percentage of other 

 
 
 
 
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mortgages originated during that same period that experienced an Ever 90 
delinquency within the first three months after origination.               
104. The Bank of America Entities were well aware in advance of BOAMS 
2008-A’s issuance that the most severe performance problems for mortgage loans 
within BANA affiliated securitizations, at a more than 2:1 ratio, were coming from 
the wholesale channel. 
105. No specific disclosure of the material performance risk presented by 
mortgage loans originated through wholesale channels was made to BOAMS 
2008-A investors.   
iii. Higher Risk of Churning and Prepayment for Wholesale Loans 
 
106. The Bank of America Entities also knew that loans originated in the 
wholesale channel posed an additional risk when compared to the direct channel:  
churning and the resulting increase in prepayment.   
107. Despite knowledge of the heightened prepayment risk, the Bank of 
America Entities failed to disclose this risk to investors. 
108. “Churning” in the context of wholesale loan origination describes 
instances in which a mortgage broker approaches an existing customer who 
recently obtained a mortgage facilitated by the broker and convinces the customer 
to refinance the mortgage. 

 
 
 
 
27 
  
109. While there may be an economic benefit to the customer as a result of 
decreases in interest rates, the mortgage broker’s incentive is to generate an 
additional sales commission through the refinance. 
110. When a mortgage loan that has been securitized refinances, the 
principal balance is paid through the securitization cash flow structure as 
appropriate, but no additional interest payments are attributable to the loan.  As a 
result, prepayment lowers the return (or profit) that investors can earn. 
111. On December 14, 2007, BAS’ RMBS trading strategy desk, a group 
that researched trends in the RMBS market, issued a report entitled “Outlook for 
the RMBS Market in 2008.”  The report was distributed widely within BANA, 
BAS, and BOAMS and to select BAS customers. 
112. The RMBS trading strategy desk analyzed BANA originated 
wholesale channel loans, and found that such loans were “susceptible to ‘churning’ 
and ‘planned refinancings’ ” by wholesale brokers who would approach borrowers 
to refinance their loans (i.e. repay the first lender with a loan from another lender) 
after the expiration of the “premium recapture” and “non-solicitation” periods. 
113. Both the “premium recapture” and the “non-solicitation” periods are 
generally set forth in the broker’s compensation agreement with the lender.  The 
“premium recapture” period is the period of time in which the lender can recover 

 
 
 
 
28 
  
any premium paid to the broker for the loan if the loan prepays.  The “non-
solicitation” period is a specified period of time in which the broker is prohibited 
by the lender from soliciting the borrower to refinance the loan.  
114. Within the BAS report, wholesale loans had averaged 5% - 10% 
higher prepayment speeds over direct    channel loans as measured under the industry 
metric of “constant prepayment rate” (“CPR”).  
115. CPR is one of the primary metrics in evaluating and pricing RMBS, as 
the expected duration of payment of the underlying loans is materially impacted by 
the speed and volume of prepayment.   
116. The report shows that wholesale loans were likely to prepay faster 
than their direct channel counterparts because the brokers could earn further 
commissions by re-approaching their former clients and soliciting the client to 
refinance. 
117. Moreover, in November 2007, as the data for the trading desk 
prepayment study was being compiled, BAS changed its internal CPR modeling to 
specifically account for and include wholesale channel concentration data in order 
to project prepayment speeds.   

 
 
 
 
29 
  
118. By December 2007, the BOAMS Principal and BAS Managing 
Director had access to a statistical analysis evidencing the realized impact on CPR 
of wholesale channel churning. 
119. Not only did BAS and BANA, in preparing and reviewing the offering 
documents, and BOAMS in filing the offering documents, fail to disclose to 
potential BOAMS 2008-A investors the risk of churning or the relevant statistics 
they had generated relating to churning, but they represented to investors that they 
were not aware of any statistics that could provide investors a basis to predict 
prepayments. 
120. Specifically, in the prospectus supplement that BOAMS filed with the 
Commission, BOAMS stated that it was “not aware of any existing statistics that 
provide a reliable basis for investors to predict the amount or the timing of receipt 
of prepayments on the [m]ortgage [l]  oans” underlying BOAMS 2008-A. 
121. BOAMS 2008-A’s performance in the first year after issuance 
evidences the churning warned of in BAS’ December 2007 report. 
122. Once wholesale loans in BOAMS 2008-A passed the three month 
“premium recapture” and “non-solicitation” period described in the BAS 
December 2007 report, such loans disproportionately prepaid compared to the 
direct channel loans securitized in BOAMS 2008-A. 

 
 
 
 
30 
  
123. BOAMS 2008-A contained 588 (49.37% of the entire BOAMS 2008-
A pool by number) wholesale loans that were originated in October and November 
of 2007. 
124. The large concentration of October and November 2007 wholesale 
loans magnified the importance of this information, as the three month premium 
recapture and non-solicitation periods would have just ended at the time of, or 
shortly after, the BOAMS 2008-A securitization closed in January 2008. 
125. In contrast, BOAMS 2008-A contained 127 (10.66% of the entire 
BOAMS 2008-A pool by number) direct channel loans originated in October and 
November of 2007 – a ratio of almost 5 wholesale loans to every 1 direct channel 
loan. 
126. After the first three months of securitization, the ratio for the refinance 
of those loans was 13.5 wholesale channel refinances to every 1 direct channel 
refinance. 
127. The disproportionate prepayment lasted for the first twelve months 
after securitization.  Though the prepayment ratio of wholesale loans to direct 
loans originated in October and November of 2007 decreased to 10:1, it was still 
double the ratio, 5:1, of all wholesale loans to direct loans originated in October 
and November of 2007. 

 
 
 
 
31 
  
C. Failure to Provide Required Channel Information 
 
128. By failing to disclose the wholesale channel concentration as well as 
the specific risks arising from the unique characteristics associated with the loans 
in BOAMS 2008-A, the Bank of America Entities did not comply with the 
disclosure requirements in Regulation S-K and subpart Regulation AB. 
129. Regulation S-K Item 503 [17 C.F.R. § 229.503] requires that an issuer 
“provide, under the caption ‘Risk Factors’ a discussion of the most significant 
factors that make the offering speculative or risky.” 
130. Item 503 further specifies that an issuer is not to “present risks that 
could apply to any issuer or any offering” and should instead “[e]xplain how the 
risk affects the ... securities being offered.”
   
131. Moreover, by failing both to disclose the fact that BOAMS 2008-A 
consisted of 72% by UPB of wholesale loans and the specific risks associated with 
such a high concentration of wholesale loans, the Bank of America Entities did not 
comply with the disclosure requirements of subpart Regulation AB. 
132. Regulation AB Items 1103, 1104, and 1111 [17 C.F.R. §§ 229.1103, 
229.1104, and 229.1111] require an issuer to provide information about the 
origination channel of the loans and the material characteristics of the asset pool.  

 
 
 
 
32 
  
Item 1111 of Regulation AB requires these disclosures irrespective of any risk they 
may pose. 
133. The Bank of America Entities did not provide such information. 
II. False Statements Regarding Compliance with Underwriting Standards 
 
134. In addition to the material misrepresentations and omissions regarding 
the wholesale-originated mortgage loans and failures to comply with Securities Act 
Regulation S-K and subpart Regulation AB [17 C.F.R. § 229 et seq.], the 
prospectus for BOAMS 2008-A misrepresented to investors that the “[m]ortgage 
[l]oans will have been underwritten materially in accordance with ... [BANA]’s 
underwriting standards....” 
135. In the PSA for BOAMS 2008-A, BANA made the misrepresentation 
that the mortgage loans underlying BOAMS 2008-A were “underwritten in 
accordance with the applicable [u]nderwriting [g]uidelines in effect at the time of 
origination with exceptions thereto exercised in a reasonable manner.” 
136. As underwriter, BAS was responsible for drafting and reviewing the 
language within the Offering Documents that contained the false and misleading 
statements concerning compliance with underwriting guidelines. 
137. In connection with the offer and sale of interests in BOAMS-2008-A, 
the BOAMS Principal executed a certification on behalf of BOAMS that 

 
 
 
 
33 
  
represented, among other things, that the mortgages backing BOAMS 2008-A 
“conform in all material respects” to BANA’s underwriting guidelines. 
138. Finally, the BOAMS Principal reviewed and signed the Underwriting 
Agreement for BOAMS 2008-A, and that agreement was filed with the 
Commission in connection with the offer and sale of BOAMS 2008-A to investors.  
In that agreement, BAS represented that the BOAMS 2008-A prospectus as filed 
did not “include any untrue statement of a material fact or omit any material fact 
required to be stated therein necessary to make the statements contained therein, in 
light of the circumstances under which they were made, not misleading”   
139. These representations were materially false.  In fact, a substantial 
percentage of the mortgages underlying BOAMS-2008-A contained material 
deviations from BANA’s underwriting guidelines. 
A. Deviation from Guidelines 
140. These material deviations include, among other things:  (1) 
misrepresented occupancy status; (2) ineligible appraisals; (3) failure to verify 
employment per BANA underwriting guidelines; (4) incorrect calculation of 
income or debts, without which the relevant mortgage would have exceeded 
applicable ratios; (5) unreasonable stated income; (6) missing, unsigned, or 

 
 
 
 
34 
  
incomplete Internal Revenue Service Form 4506-T; and (7) BANA indicators of 
potential mortgage fraud for which there is no available resolution. 
141. For example, in one mortgage loan file, the appraised value of the 
home was recorded as $781,000 as of August 17, 2007.  That same home had sold 
for $501,000 on March 29, 2007, and the appraiser noted that there had been no 
material improvements since the property was last sold.  The appraisal provided no 
explanation for the 55.8% increase in value over just 4½ months.      
142. In another loan file, the borrower represented that the loan was for the 
purchase of his primary residence.  This residence, however, was located more 
than 2,600 miles from the borrower’s stated place of employment.  There is no 
explanation in the file of how the borrower’s representations about his employment 
could be squared with his representations about the use of the loan to acquire a 
primary residence. 
143. In another loan file, the loan application indicates that the borrower 
was employed as an “Insurance Sales Producer”   in Santa Barbara, California with 
4 years of experience and a monthly income of $13,565.  The salary for an 
Insurance Agent in the Santa Barbara, California metropolitan area at the time was 
$4,857 a month, according to accepted mortgage industry databases.  There is no 
evidence in the loan files that the underwriter resolved this discrepancy. 

 
 
 
 
35 
  
144.  In another loan file, the loan application indicates that the borrower 
was employed as “Director” of a school in Los Angeles, California with 11 years 
of experience and a monthly income of $19,500.  The employment verification in 
the loan file, however, showed that the borrower was employed by the school as a 
“Chief Librarian.”  The top wages for librarians in the Los Angeles, California 
metropolitan area at the time was approximately $7,000 per month, according to 
the Bureau of Labor Statistics. There is no evidence in the loan files that the 
underwriter resolved this discrepancy. 
145. Another mortgage loan that closed in September 2007 was included in 
the BOAMS 2008-A despite BANA’s suspicion that the borrower had made 
fraudulent representations on the loan application.  In the loan application, the 
borrower represented that he intended to use the collateral as his primary residence.  
In a separate mortgage loan application, completed at the same time the first loan 
closed and processed by the same BANA loan officer, the same borrower 
represented that a different property would be his primary residence.  BANA was 
undeniably aware of this apparent fraud before the BOAMS 2008-A offering 
closed because, by December 2007, it brought these facts to the attention of law 
enforcement.        

 
 
 
 
36 
  
146. Loans that were materially non-compliant with underwriting 
guidelines were  50% more likely to default and 20% more likely to prepay than 
the total pool population – each a significant negative impact on the relative 
performance of BOAMS 2008-A. 
147. The Bank of America Entities knew or should have known that the 
representations in the BOAMS 2008-A Offering Documents and related documents 
given to investors regarding the material compliance with underwriting standards 
were false.   
148. The QARs for August through November 2007, which corresponded 
to the exact periods in which the mortgage loans for BOAMS 2008-A were 
underwritten by BANA, were reviewed by representatives of each of the Bank of 
America Entities, including the BOAMS Principal and the BAS Managing 
Director.  These QARs revealed a significant percentage of the loans originated by 
BANA, which the Quality Assurance group had randomly sampled, had “serious or 
critical exceptions” in underwriting. 
149. Specifically, these reports showed that, of the mortgage loans 
randomly sampled that were originated between August and December 2007 and 
were not government insured or guaranteed, as much as 10.5% had “serious or 
critical underwriting exceptions.”  The three most prevalent exceptions noted were 

 
 
 
 
37 
  
“borrower misrepresentation of employment,”  “borrower misrepresentation of 
stated income” and “occupancy issues.” 
150. The QARs for this period also document the disturbing fact that the 
overall underwriting exception rate for BANA originated loans had more than 
doubled between 2005 to 2007, such that by the point in time BOAMS 2008-A was 
being securitized more than 8% of the loans sampled for the year 2007 had 
“serious or critical exceptions” to underwriting.  No disclosure of this more than 
doubling of “serious or critical exceptions” to underwriting was ever made to 
investors. 
151. These trends were particularly relevant to BOAMS 2008-A, given its 
wholesale channel composition, as “serious or critical exceptions” in wholesale 
channel underwriting by November 2007 were at 16% – more  than twice the 
overall “serious or critical exceptions” rate. 
152. The BOAMS Principal admitted that, by the time the BOAMS 2008-
A was being offered and sold, she and other BANA employees were aware of a 
growing trend in serious and critical underwriting exceptions in mortgage loans 
originated by BANA, but did not understand the cause of this trend.  
153. Despite all of the evidence in the contemporaneous QARs indicating a 
material number of underwriting exceptions were almost certain to exist within the 

 
 
 
 
38 
  
loans underlying BOAMS 2008-A, BAS failed to engage in any independent due 
diligence to determine whether the loans in BOAMS 2008-A materially complied 
with BANA’s underwriting guidelines. 
154. Historically, BAS had commissioned an independent due diligence 
testing of the loans underlying RMBS that it was underwriting, so that BAS could 
identify and remove loans that did not comply with guidelines from the loan pool 
and also to provide a basis for representations that the remaining loans complied 
with underwriting guidelines. 
155. For the three BOAMS RMBS as to which BAS performed this loan 
level due diligence in 2007, the independent findings identified that more than 40% 
of the mortgages sampled did not conform with BANA’s underwriting guidelines, 
and that even after a review of all potential compensating factors, a material 
amount of the mortgages sampled needed to be removed from these prior BOAMS 
RMBS due to underwriting errors.   
156. Hence, at the point in time at which due diligence was most justified 
given the prior due diligence reports and the findings of the current QARs and was 
most likely to uncover and reveal material numbers of underwriting errors, the 
BAS Managing Director and others at BAS made the decision not to perform any 
due diligence on the mortgage loans underlying BOAMS 2008-A. 

 
 
 
 
39 
  
157. Had BAS engaged in such independent due diligence, had BAS 
employed adequate underwriting procedures, or had BAS employed adequate 
quality assurance procedures, BAS likely would have discovered the material 
number of loans in the BOAMS 2008-A loan pool that deviated from BANA’s 
underwriting guidelines. 
158. By representing in the BOAMS 2008-A Offering Documents that the 
loans in BOAMS 2008-A conformed with BANA’s underwriting guidelines, when 
in fact a material amount of those loans did not, each of the Bank of America 
Entities made false and misleading representations to investors that understated the 
risks associated with BOAMS 2008-A. 
B. BANA’s failure to comply with its underwriting guidelines when 
calculating data in its loan tapes 
159. Additionally, BANA’s underwriting guidelines included prescribed 
methodologies for calculating certain ratios, such as DTI and OCLTV.   
160. BANA failed to materially comply with its own underwriting 
guidelines in calculating these key ratios. 
161. Specifically, approximately 29% of the loans securitized in BOAMS 
2008-A contained DTI calculation errors of greater than 5%, and approximately 

 
 
 
 
40 
  
7% of the loans securitized in BOAMS 2008-A contained OCLTV calculation 
errors of greater than 5%. 
162. The BOAMS 2008-A Offering Documents and loan tapes reported the 
DTI and OCLTV ratios, without disclosing that the ratios for many of the loans 
had been calculated in a manner that did not comply with BANA’s underwriting 
guidelines.   
163. BANA’s failures to comply with its own underwriting guidelines 
resulted in BANA making repeated misrepresentations regarding DTI and OCLTV 
that it knew would be distributed to investors and publicly filed with the 
Commission. 
164. BAS made misrepresentations to investors and ratings agencies by 
providing loan tapes and summary tables to investors and ratings agencies that 
contained these misrepresentations regarding DTI and OCLTV. 
165. BOAMS made misrepresentations to investors and others by publicly 
filing with the Commission loan tapes and summary tables to investors and ratings 
agencies that contained these misrepresentations regarding DTI and OCLTV. 
166. These misrepresentations of the Bank of America Entities served to 
mislead investors about the risks associated with BOAMS 2008. 

 
 
 
 
41 
  
167. BANA’s underwriting procedures and quality assurance processes   
failed to uncover these   systemic failures to  accurately calculate DTI and OCLTV 
ratios. 
C. Additional Misrepresentations in Loan Tapes by BAS 
 
168. In addition to underwriting errors contributing to false statistical 
information being communicated to investors, BAS incorrectly grouped and 
summarized BANA’s OCLTV for the underlying loans and subsequently provided 
further incorrect information for OCLTV to investors and ratings agencies for a 
material number of BOAMS 2008-A loans. 
169. As part of the underwriting and solicitation process, analysts at BAS’ 
RMBS trading desk took the data received from BANA and compiled it into 
summary tables and investor focused loan tapes. 
170. Investors used these materials to make pricing decisions and to 
internally model expected performance of the securitization, while the ratings 
agencies similarly used these materials to determine necessary credit enhancement 
and ratings for the pool. 
171. BAS’ summaries of OCLTV, however, inaccurately represented the 
OCLTV as found by BANA. 

 
 
 
 
42 
  
172. When analysts at BAS calculated the OCLTV in the BOAMS 2008-A 
loan tape for investors, they improperly excluded the entire home equity line of 
credit or portions thereof  for approximately 7% of the mortgage loans backing 
BOAMS 2008-A.   
173. A significant majority of the loans whose OCLTV was miscalculated 
by BAS increased in OCLTV by 5% or more when corrected. 
174. BAS overstated the number of loans with OCLTV at or below 80% 
and understated the number of loans with OCLTV above 80%. 
175. 80% OCLTV is a threshold requirement for many of the applicable 
underwriting guidelines and mortgage insurance requirements. 
176. By failing to accurately report the OCLTV of a material amount of the 
loans in BOAMS 2008-A, BAS made false and misleading representations to 
investors and rating agencies.  As a result, a material amount of the BOAMS 2008-
A pool was riskier than disclosed to both investors and rating agencies. 
III. Failure to File Written Communications as Free Writing Prospectus 
177. BOAMS 2008-A was structured after a long series of communications 
with potential investors. 
178. BAS regularly communicated with potential investors until such 
investors were ready to commit themselves to investing in a transaction. 

 
 
 
 
43 
  
179. BAS provided potential investors with various information concerning 
the proposed RMBS transaction that would become BOAMS 2008-A. 
180. This information would often include preliminary loan tapes. 
181. As discussions progressed with potential investors, BAS sent two 
entities a preliminary loan tape that included data identifying loan origination 
channels. 
182. A majority of the loans in the preliminary loan tapes became a part of 
the final structure of BOAMS 2008-A. 
183. BAS also provided loan tapes containing origination channel 
information to Standard & Poor’s, who was responsible for rating BOAMS 2008-
A. 
184. Neither BOAMS nor BAS filed with the Commission all of the 
preliminary loan tape information that BAS shared with the potential investors.  
185. The potential investors who received these loan tapes committed to 
purchasing BOAMS 2008-A shares prior to the time the structure was finalized. 
186. BOAMS   and BAS failed to file with the Commission any loan tapes 
at any point in time that contained the percentage of the mortgage loans underlying 
BOAMS 2008-A that were originated through the wholesale channel. 

 
 
 
 
44 
  
187. The loan tapes provided by BAS trading desk employees to certain 
investors via email are written communications constituting free writing 
prospectuses under the Securities Act. 
188. BOAMS was required to file those loan tapes with the Commission 
through EDGAR in order to use them as written communications. 
189. BOAMS did file a different loan tape on EDGAR as a free writing 
prospectus that omitted the wholesale origination channel information, which made 
the loan tape that was filed materially misleading. 
190. BAS did not have adequate procedures in place to ensure that all 
communications with investors were reviewed for purposes of complying with the 
Commission’s filing requirements. 
COUNT I—FRAUD 
 
Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act 
[15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)] 
 
191. Paragraphs 1 through 190 are hereby realleged and are incorporated 
herein by reference. 
192. From at least November 2007, through at least January 2008, 
Defendants, in the offer and sale of the securities described herein, by use of means 

 
 
 
 
45 
  
and instruments of transportation and communication in interstate commerce and 
by use of the mails, directly and indirectly: 
 a.   obtained money and property by means of untrue statements of 
material fact and omissions to state material facts necessary in order to make the 
statements made, in light of the circumstances under which they were made, not 
misleading; and 
 b.    engaged in transactions, practices and courses of business 
which would and did operate as a fraud and deceit upon the purchasers of such 
securities, 
all as more particularly described above. 
193. By reason of the foregoing, Defendants, directly and indirectly, have 
violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 
17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. 
COUNT II—FAILURE TO FILE PROSPECTUS 
Violations of Section 5(b)(1) of the Securities Act 
[15 U.S.C. §§ 77e(b)(1)] 
 
194. Paragraphs 1 through 190 are hereby realleged and are incorporated 
herein by reference. 

 
 
 
 
46 
  
195. From at least November 2007, through at least January 2008, BAS and 
BOAMS, directly or indirectly made use of means and instruments of transportation 
or communication in interstate commerce or of the mails to carry or transmit a 
prospectus relating to a security with respect to which a registration statement had 
been filed without ensuring that the prospectus met the requirements of Section 10 of 
the Securities Act. 
196. By reason of the foregoing, BAS and BOAMS, directly and indirectly, 
have violated and, unless enjoined, will continue to violate Section 5(b)(1) of the 
Securities Act [15 U.S.C. § 77e(b)(1)].   
PRAYER FOR RELIEF 
 WHEREFORE, Plaintiff Commission respectfully prays for: 
I.   
 Findings of fact and conclusions of law pursuant to Rule 52 of the Federal 
Rules of Civil Procedure, finding that Defendants committed the violations alleged 
herein. 
II.    
 A permanent injunction enjoining BANA, its officers, agents, servants, 
employees, and attorneys from violating, directly or indirectly, Section 17(a) of the 
Securities Act [15 U.S.C. §77 q(a)]. 

 
 
 
 
47 
  
III.    
 A permanent injunction enjoining BAS, BOAMS, their officers, agents, 
servants, employees, and attorneys from violating, directly or indirectly, Sections 
5(b) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(b)  and 77 q(a)]. 
IV. 
 
 An order requiring the disgorgement by Defendants of all ill-gotten gains, 
losses avoided, or unjust enrichment with prejudgment interest, to effect the remedial 
purposes of the federal securities laws. 
V. 
 An order pursuant to Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] 
imposing civil penalties against Defendants.    
VI. 
 Such other and further relief as this Court may deem just, equitable, and 
appropriate in connection with the enforcement of the federal securities laws and for 
the protection of investors.  
 
 The Commission demands a jury trial. 

 
 
 
 
48 
  
 
Dated: August 6, 2013 
Respectfully submitted, 
 
 
/s/ Kristin B. Wilhelm        
 William P. Hicks 
 Associate Regional Director 
 Georgia Bar No. 35169 
 Email:  [email protected] 
   
 M. Graham Loomis 
 Regional Trial Counsel 
 Georgia Bar No. 457868 
    Email:  [email protected] 
  
 Kristin B. Wilhelm 
      Senior Trial Counsel 
      Georgia Bar No. 759054 
      Email: [email protected]
 
 
      Mark Eric Harrison 
      Senior Counsel 
      Massachusetts Bar No. 640487 
      Email:  [email protected] 
        
     COUNSEL FOR PLAINTIFF 
     Securities and Exchange  Commission 
     950 East Paces Ferry Road, N.E. 
     Suite 900 
     Atlanta, Georgia 30326-1382 
     Tel: (404) 842-7600 
     Fax: (404) 842-7666 

IN THE UNITED STATES DISTRICT COURT 
FOR THE WESTERN DISTRICT OF NORTH CAROLINA 

CHARLOTTE DIVISION 
 
 
SECURITIES AND EXCHANGE 
COMMISSION, 

: 
: 
: 

 
 

 
Plaintiff, 

: 
: 

 
 Civil Action No. 3:13-cv-447 

v. : 
: 

 

 
BANK OF AMERICA, N.A., BANC OF 
AMERICA MORTGAGE SECURITIES, 
INC., and MERRILL LYNCH, PIERCE, 
FENNER & SMITH, INC. f/k/a BANC 
OF AMERICA SECURITIES LLC,  

 
Defendants. 

:
:
:
:
: 
: 
: 
: 
: 

 
 

 :  
 

COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF 
 
 Plaintiff, Securities and Exchange Commission (the “Commission”), files its 

complaint and alleges that: 

OVERVIEW 

1. This case involves violations of the federal securities laws by Bank of 

America, N.A. (“BANA”), its wholly owned subsidiary, Banc of America 

Mortgage Securities, Inc. (“BOAMS”), and its affiliate, the then Banc of America 

Securities LLC (“BAS”), now Merrill Lynch, Pierce, Fenner & Smith, Inc. 

(collectively, the “Bank of America Entities” or “Defendants”). 



 
 

 

 
2 

  

2. BANA, a wholly owned subsidiary of Bank of America Corporation 

(“BAC”), originated more than $90 billion in mortgage loans during 2007.  BAC 

maintained some of these mortgage loans on its own corporate investment book 

and bundled other mortgage loans into securities, which are commonly known as 

residential mortgage-backed securities (“RMBS”).  These RMBS were then 

offered and sold to investors through entities like BOAMS.  

3. The bundling of mortgages into RMBS and selling them to investors 

was described in BAC’s public filings at the time as its “originate to distribute 

strategy.”   

4. The Bank of America Entities misrepresented and omitted certain 

material facts regarding an RMBS, backed by more than $855 million of 

residential mortgages, known as BOAMS 2008-A, that was offered and sold in 

2008.   

5. Specifically, in filings with the Commission, the Bank of America 

Entities portrayed BOAMS 2008-A as backed by “prime” mortgage loans, 

meaning that those loans had a higher credit quality than other types of mortgage 

loans, such as “subprime” or “Alt-A.” Because BOAMS 2008-A was portrayed as 

being backed by prime mortgages, it attracted investors looking for safe, 

conservative investments.   



 
 

 

 
3 

  

6. In fact, an unprecedented portion of the mortgage loans backing the 

security had been originated through mortgage brokers unaffiliated with the Bank 

of America Entities (referred to as the “wholesale channel” or “wholesale loans”). 

7. By the time BOAMS 2008-A was being offered and sold to investors, 

the Bank of America Entities knew that wholesale channel loans were significantly 

more likely than loans originated by BANA employees to be subject to material 

underwriting errors, become severely delinquent, fail early in the life of the loan, 

or prepay – all of which negatively impact investors in RMBS. 

8. By the time the BOAMS 2008-A was being offered and sold, the then 

CEO of BAC had referred to wholesale loans as “toxic waste” and BANA had 

closed its wholesale channel. 

9. Although required to disclose this information under Regulation S-K 

and subpart Regulation AB of the Securities Act of 1933 (“Securities Act”), the 

Bank of America Entities failed to disclose the large concentration of wholesale 

loans as well as the substantial risk the concentration presented to investors.   

10. In addition, the filings with the Commission and the loan tapes 

provided to investors and rating agencies misrepresented that the mortgage loans 

backing BOAMS 2008-A were underwritten in accordance with BANA’s 

guidelines.  In fact, the Bank of America Entities knew or should have known that 



 
 

 

 
4 

  

a large percentage of the mortgage loans had significant deviations from BANA’s 

guidelines, such as ineligible appraisals or falsified borrower income, and that they 

were not eligible for inclusion in BOAMS 2008-A. 

11. BAS also provided investors and the various rating agencies that rated 

RMBS with documents, known as loan tapes, that provided the key characteristics 

of the underlying mortgages.  The loan tapes provided for BOAMS 2008-A 

misrepresented material facts about the underlying mortgages.  For example, the 

loan tapes misrepresented debt-to-income (“DTI”) and original combined loan-to-

value (“OCLTV”) ratios of the mortgages backing BOAMS 2008-A.  These 

misstated ratios within the loan tapes falsely portrayed the mortgage loans, and 

thus BOAMS 2008-A, as less risky.  BOAMS publicly filed with the Commission 

certain of these loan tapes containing material misrepresentations. 

12. As a result of the misstatements and omissions, the Bank of America 

Entities violated Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 

77q(a)(2) & 77q(a)(3)]. 

13. BAS and BOAMS also violated Section 5(b)(1) of the Securities Act 

[15 U.S.C. § 77e(b)(1)] by failing to publicly file with the Commission—and 

thereby make accessible to all investors—copies of loan tapes containing 



 
 

 

 
5 

  

information about the channel of origination for the loans underlying BOAMS 

2008-A that were disclosed only to select investors. 

14. BAS and BOAMS have engaged and, unless restrained and enjoined 

by this Court, will continue to engage in acts and practices that constitute and will 

constitute violations of Sections 5(b)(1), 17(a)(2), and 17(a)(3) of the Securities 

Act [15 U.S.C. §§ 77(e), 77q(a)(2) & 77q(a)(3)].   

15. BANA has engaged and, unless restrained and enjoined by this Court, 

will continue to engage in acts and practices that constitute and will constitute 

violations of Sections 17(a)(2), and 17(a)(3) of the Securities Act [15 U.S.C. §§ 

77q(a)(2) & 77q(a)(3)]. 

JURISDICTION AND VENUE 

16. The Commission brings this action pursuant to Section 20 of the 

Securities Act [15 U.S.C. § 77t] to enjoin Defendants from engaging in the 

transactions, acts, practices, and courses of business alleged in this complaint, and 

transactions, acts, practices, and courses of business of similar purport and object, for 

disgorgement,  civil penalties and for other equitable relief.  

17. This Court has jurisdiction over this action pursuant to Sections 20(b), 

20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(b), 77t(d) and 77v(a)]. 



 
 

 

 
6 

  

18. Defendants, directly and indirectly, made use of the mails, and the 

means and instruments of transportation and communication in interstate 

commerce in connection with the transactions, acts, practices, and courses of 

business alleged in this complaint. 

19. Certain of the transactions, acts, practices, and courses of business 

constituting violations of the Securities Act occurred in the Western District of 

North Carolina.  BANA’s and BOAMS’ principal place of business is in the 

Western District of North Carolina. 

20. Defendants, unless restrained and enjoined by this Court, will 

continue to engage in the transactions, acts, practices, and courses of business 

alleged in this complaint, and in transactions, acts, practices, and courses of 

business of similar purport and object. 

THE DEFENDANTS 

21. Bank of America, N.A. is a nationally chartered banking association 

headquartered in Charlotte, North Carolina.  BANA is a wholly owned subsidiary 

of BAC.  BANA is also an affiliate of BAS, which is also a wholly owned 

subsidiary of BAC.  BANA served as the originator, underwriter, and servicer for 

the entirety of the mortgage loans that comprised BOAMS 2008-A.  BANA is also 

the sponsor of BOAMS 2008-A.     



 
 

 

 
7 

  

22. Merrill Lynch, Pierce, Fenner & Smith Incorporated, as successor to 

BAS, is a Delaware corporation and a Commission-registered broker-dealer 

headquartered in New York, New York.  It is a wholly owned subsidiary of BAC 

and is liable as successor-in-interest by merger to BAS.  BAS was the sole 

underwriter for BOAMS 2008-A and was the primary entity structuring and 

documenting the transaction.  As the underwriter, BAS offered and sold interests in 

BOAMS 2008-A to investors.    

23. Banc of America Mortgage Securities, Inc. is a Delaware corporation 

headquartered in Charlotte, North Carolina.  BOAMS is a wholly owned subsidiary 

of BANA that has no business operations beyond offering RMBS and related 

activities.  BOAMS functioned as the depositor for BOAMS 2008-A. 

THE PROCESS FOR ORIGINATING AND 
SECURITIZING MORTGAGE LOANS 

 
24. For the year 2007, BANA originated $93.3 billion in first lien 

mortgage production.  BANA originated these mortgage loans either through its 

direct or wholesale channels.    

25. Direct channels involve a BANA employee working with the 

borrower, either through BANA’s website, at a BANA retail location such as a 

bank branch or over the phone, to complete the loan application package. 



 
 

 

 
8 

  

26. In the wholesale origination channel, the borrower works with an 

unaffiliated mortgage broker in completing the loan application package.  The 

mortgage broker is paid a fee upon closing of the loan. 

27. BAC maintained some of these mortgage loans on its own corporate 

investment book.  Through its subsidiaries, BAC bundled other mortgage loans 

into RMBS that were then offered and sold to investors through entities like 

BOAMS.  

28. The bundling of mortgages into RMBS and selling them to investors 

is known as “securitizing” the mortgages and was described in BAC’s public 

filings at the time as its “originate to distribute strategy.” 

29.  RMBS typically consisted of classes, referred to as tranches.  

Investors in RMBS received “certificates” representing an interest in a particular 

tranche of RMBS.  The certificates are fixed income securities that entitle their 

holders to a schedule of payments of principal and interest at a specified rate. 

30. Each tranche of RMBS had a different seniority in the priority of 

repayment and a different rate of interest.  RMBS were structured so that investors 

who owned certificates with a higher credit rating and a higher priority of 

repayment received a lower interest rate than certificates with a lower credit rating 

and a lower priority of repayment.   



 
 

 

 
9 

  

31. RMBS can incur losses if a sufficient number of borrowers on the 

underlying mortgage loans default and the liquidation of the collateral securing 

those mortgage loans does not generate sufficient cash to cover the outstanding 

loan balances.  Losses are typically borne first by the subordinate tranches.  If the 

losses are sufficiently large, the entire principal balance of the subordinate tranche 

could be written off, resulting in no further payments to certificate-holders who 

invested in that tranche of RMBS. 

32. Because this structure increased the risk to subordinate tranches, the 

quality of the mortgages underlying RMBS played a particularly significant role in 

determining the price investors would pay for an interest in those tranches.       

BOAMS 2008-A 

33. BOAMS filed the prospectus supplement for BOAMS 2008-A with 

the Commission on January 29, 2008.  The offering was originally scheduled for 

December 2007, but was delayed due to a slowdown in the securitization markets.   

34. A majority of the certificates for BOAMS 2008-A were sold in a 

public offering that corresponded with the public filing of the offering documents.  

The remaining certificates were sold, in part, through private placements utilizing 

the same publicly filed information.  Those private placements were effected over 

the months following the public offering. 



 
 

 

 
10 

  

35. BOAMS 2008-A was an RMBS backed by 1,191 residential mortgage 

loans, originated between mid-July and late November 2007, with an unpaid 

principal balance (“UPB”) of approximately $855 million.  All of these mortgages 

were “Jumbo,” meaning that the initial principal balance exceeded $417,000. 

36. The principal and interest payments on these mortgages were to flow 

through to the investors in the BOAMS 2008-A RMBS.  

37. BANA originated each of the 1,191 loans in the BOAMS 2008-A 

RMBS through either its direct or wholesale channels. 

38. BOAMS served as the depositor in the BOAMS 2008-A transaction.  

In that role, BOAMS acquired from BANA the 1,191 loans that BANA had 

originated and then “deposited” them into the BOAMS 2008-A RMBS.  BOAMS 

was the issuer of that RMBS. 

39. While the BOAMS 2008-A transaction was being structured, BAS 

marketed the transaction to potential investors and received commitments to 

purchase a portion of the certificates from certain investors. 

40. BOAMS then sold the certificates, representing interests in the various 

tranches of BOAMS 2008-A, to BAS.  BAS then sold the certificates to investors.  

41. In connection with the offering of the interests in BOAMS 2008-A to 

investors, BOAMS filed with the Commission a prospectus, prospectus 



 
 

 

 
11 

  

supplement, free writing prospectuses, a pooling and servicing agreement (“PSA”) 

and related documents (collectively “the BOAMS 2008-A Offering Documents”).  

These documents disclose certain material facts about BOAMS 2008-A, as well as 

the mortgage loans backing BOAMS 2008-A. 

42. A prospectus is a disclosure document that describes a security to 

investors. 

43. A prospectus supplement contains additional information about the 

security that may not be disclosed in the prospectus. 

44. A free writing prospectus is a written communication, including an 

electronic communication, that constitutes an offer outside the statutory 

prospectus. 

45. A pooling and servicing agreement describes how pooled loans will 

be serviced and sets forth how proceeds and losses from those loans will be 

distributed to investors in the securitization. 

46. Beyond its role as underwriter and primary contact and information 

source for investors, BAS structured BOAMS 2008-A.  BAS employees were the 

primary drafters of the BOAMS 2008-A Offering Documents and loan tapes that 

were disseminated to investors and publicly filed with the Commission. 



 
 

 

 
12 

  

47. As described below, BAS provided various credit rating agencies with 

preliminary prospectuses and loan tapes so that those agencies could rate the 

certificates representing interests in BOAMS 2008-A that were offered and sold to 

investors.  Those documents contained inaccurate information. 

48. Substantially all of the certificates representing interests in BOAMS 

2008-A received the highest credit rating from various ratings agencies.  These 

high credit ratings were based in large part on the perceived quality of the 

underlying mortgage loans backing BOAMS 2008-A and indicated that the 

certificates were a safe and conservative investment. 

49. The primary purchasers for the certificates were institutional investors 

that were required to purchase only securities that had the highest credit ratings.   

50. As of the June 2013 trustee report, BOAMS 2008-A had an 8.05% 

cumulative net loss rate, representing a loss of approximately $69 million – the  

greatest relative cumulative net loss rate of any comparable BOAMS securitization 

– and it continues to incur additional losses at a disproportionately advanced rate 

month over month.  It is anticipated that the future losses to the securitization will 

be approximately $50 million.  



 
 

 

 
13 

  

51. The subordinate or “B” tranches of BOAMS 2008-A have been 

completely written off as the result of borrower defaults or prepayments of the 

underlying mortgage loans. 

52. By securitizing the mortgage loans into BOAMS 2008-A, the Bank of 

America Entities shifted the risk of loss of those mortgage loans from themselves 

to BOAMS 2008-A investors and thus avoided the losses incurred by the 

mortgages underlying BOAMS 2008-A.  

THE BANK OF AMERICA ENTITIES’ FRAUDULENT CONDUCT 

I. Undisclosed Risks Concerning Loans from the Wholesale Channel 
 

A. Unprecedented Concentration of Wholesale Loans 
 

53. The prospectus for BOAMS 2008-A incorporated by reference a 

BANA website containing performance information for prior securitizations 

involving “mortgage loans underwritten in accordance with [BANA’s] general 

underwriting standards” (information generally referred to as “Static Pool Data”). 

54. However, compared to prior RMBS offered and sold by BOAMS, 

BOAMS 2008-A had a disproportionately high level of wholesale loans. 

55. Specifically, BOAMS 2008-A was made up of 72% of wholesale 

loans in terms of UPB.  The prior RMBS sold by BOAMS in 2006 and 2007 and 

reflected in the Static Pool Data averaged only 41% UPB of wholesale loans.   



 
 

 

 
14 

  

56. When BOAMS 2008-A was offered and sold, channel concentration 

was a key metric used by rating agencies and many RMBS investors. 

57. The supplemental prospectus contained a statement advising investors 

that the Static Pool Data “may not be indicative of future performance” but 

claimed that any variance would be caused by factors beyond BANA’s control, 

such as variances in housing prices rather than a material difference in the 

composition of BOAMS 2008-A as compared to prior RMBS.  

58. Neither the BOAMS 2008-A Offering Documents filed with the 

Commission in connection with the offering of BOAMS 2008-A nor the Static 

Pool Data disclosed the disproportionately high level of wholesale loans 

underlying BOAMS 2008-A or the unprecedented nature of the concentration of 

wholesale loans in BOAMS 2008-A as compared to previous BOAMS offerings. 

59. Only a few investors were provided with information identifying the 

wholesale channel concentration of BOAMS 2008-A, and the Bank of America 

Entities did not publicly disclose the wholesale channel information.  As a result, 

not all investors had access to the same information and not all investors, or 

members of the public, were aware of the disproportionate amount of wholesale 

channel loans included in BOAMS 2008-A in comparison to previous BOAMS 

offerings. 



 
 

 

 
15 

  

60. Moreover, even those investors who were provided with information 

about the wholesale channel concentration of BOAMS 2008-A were not told about 

the specific risks associated with the loans within BOAMS 2008-A. 

B. Specific Risks Associated with Wholesale Loans 

61. When BOAMS 2008-A was offered and sold, the Bank of America 

Entities knew that the expected performance for wholesale loans had declined and 

presented materially higher risks of (a) deviation from BANA underwriting 

guidelines (“underwriting risk”), (b) default, and (c) prepayment, when compared 

to direct channel loans.  

62. In fact, on July 19, 2007, the then BAC CEO stated in BAC’s Second 

Quarter 2007 earnings call that, compared to direct channel loans, broker sourced 

loans “tend[] to be toxic waste.” 

63. The prospectus filed with the Commission in connection with the 

offering of BOAMS 2008-A was substantially similar to the prospectuses that were 

filed in connection with prior RMBS offerings by the Bank of America Entities. 

64. The similarities between these prospectuses, coupled with the 

references in the BOAMS 2008-A Offering Documents to the Static Pool Data (i.e. 

loan performance in prior RMBS) as a potential indicator of the performance of the 

loans in the BOAMS 2008-A, misleadingly portrayed the risks associated with 



 
 

 

 
16 

  

BOAMS 2008-A to be substantially similar to prior RMBS offered and sold by the 

Bank of America Entities. 

65. Given the disproportionately high level of wholesale loans backing 

BOAMS 2008-A and the demonstrated problems associated with such loans, the 

Bank of America Entities knew that BOAMS 2008-A presented substantially 

greater risks than prior RMBS offered and sold by the Bank of America Entities.  

66. Despite each of the Bank of America Entities being on notice of risks 

related to underwriting, defaults and churning discussed below, they made no 

effort to disclose to investors how those risks might affect the overall risk and or 

performance of BOAMS 2008-A. 

i. Underwriting Risks 
 

67. As part of the mortgage loan origination process, originators such as 

BANA examine whether potential borrowers and the proposed loan product meet 

certain criteria or standards, referred to as underwriting guidelines, such as the loan 

amount compared to borrower income and the loan amount compared to the value 

of the property securing the loan.  These standards are used to evaluate the 

borrower’s ability to make the required principal and interest payments and the 

adequacy of the mortgage property as collateral for the mortgage loan.   



 
 

 

 
17 

  

68. Compliance with underwriting guidelines is a material fact for RMBS 

investors because it provides some assurance that the borrowers will not default on 

the mortgage loans and, if there is a default, the collateral will be sufficient to 

cover the mortgage loan balance. 

69. Mortgage loans that do not comply with underwriting standards are 

generally perceived as riskier.  In fact, a bond trader at BAS who traded 

subordinate interests in RMBS (the “BAS Bond Trader”) admitted that “he didn’t 

feel comfortable” including mortgage loans in the BOAMS 2008-A loan pool if 

those loans did not comply with BANA’s underwriting standards because those 

mortgage loans were riskier than mortgage loans that complied with BANA’s 

underwriting standards. 

70. “Underwriting risk” is the risk that a loan has a material or serious 

deviation from the originator’s underwriting standards. 

71. Mortgage loans originated through the wholesale channel present a 

higher underwriting risk than mortgage loans originated through direct channels.  

This is largely because the individuals responsible for wholesale channel loans, 

commonly referred to as mortgage brokers, have different financial incentives than 

a party affiliated with the originating institution. 



 
 

 

 
18 

  

72. Internal documents created by the Bank of America Entities shortly 

before the offer and sale of interests in BOAMS 2008-A confirm that loans 

originated through wholesale channels had significantly higher underwriting risks.  

Internal documents also show that there was a high correlation between mortgage 

loans that deviated from underwriting standards and mortgage loans that 

experienced delinquencies within a few months after origination. 

73. Specifically, BANA’s internal quality assurance group conducted 

monthly reviews of underwriting compliance by sampling and re-underwriting 

mortgage loan production.  The monthly quality assurance reports (“QARs”) 

prepared by the group were then circulated within BANA and to certain 

individuals involved in the RMBS program at BAS.  The QARs tracked, among 

other things, trends in “serious or critical underwriting exceptions” by mortgage 

origination channel. 

74. The QARs for the three most relevant months for the mortgage loans 

included within BOAMS 2008-A, September to November 2007, were circulated 

between November 19, 2007 and January 18, 2008.  During this key period, the 

QARs identified a more than doubling of “serious or critical underwriting errors” 

for wholesale-originated loans. 



 
 

 

 
19 

  

75. In fact, in the then most recent QAR distributed in January 2008, the 

exceptions for wholesale-originated loans had spiked such that it was evidencing 

16% serious or critical underwriting exceptions.  This contrasted with 7.6% serious 

or critical underwriting exceptions for all origination channels at BANA. 

76. Thus, at the time BOAMS 2008-A was being securitized with the 

greatest percentage of wholesale loans of any comparable offering, mortgage loans 

originated through wholesale channels were more than twice as likely to have 

serious or critical underwriting errors. 

77. BANA and BAS were aware of this risk when they were securitizing 

BOAMS 2008-A. 

78. The QARs were received and reviewed by, among others, a BANA 

employee who was also an officer and principal of BOAMS (the “BOAMS 

Principal.”)  

79. The BOAMS Principal was a Senior Vice President of BANA, who at 

all relevant times, had responsibility for reviewing the offering documents for 

BANA and managing the BOAMS’ filings with the Commission.  Specifically, the 

BOAMS Principal (a) assisted with mortgage loan securitizations, (b) reviewed 

and signed public filings for RMBS, including the offering documents for BOAMS 

2008-A and (c) was an agent of BAS responsible for investor relations. 



 
 

 

 
20 

  

80. Despite the BOAMS Principal and others at the Bank of America 

Entities being on notice of the significant increase in serious or critical exceptions 

documented in the monthly QARs, the BOAMS 2008-A Offering Documents 

contained no disclosure of the heightened risk of serious or critical underwriting 

exceptions for wholesale channel loans. 

81. The QARs were also regularly received by the managing director of 

BAS who was responsible for creating and supervising BAS’ RMBS program (the 

“BAS Managing Director”). The BAS Managing Director was a Senior Vice 

President of BANA.  The BAS Managing Director also was the president and 

Chief Executive Officer of BOAMS. 

82. At all relevant times, the BAS Managing Director was in charge of the 

BAS Mortgage Finance Group, responsible for the underwriting of BOAMS 2008-

A.  The BAS Managing Director had supervisory responsibility for structuring 

BOAMS 2008-A and for preparing the offering documents. 

83. Neither the BAS Managing Director, the BOAMS Principal, or 

anyone else involved with BOAMS 2008-A, took any steps to ensure or even 

inquire into whether any of the loans in BOAMS 2008-A had been reviewed by 

BANA’s quality assurance group.21 

  

ii. Higher Default Risk for Wholesale Loans  
 

84. Internal documents created by, and other information reviewed by, the 

Bank of America Entities also show that, around the time BOAMS 2008-A was 

being offered and sold, loans originated through wholesale channels had 

demonstrated a significantly higher risk of default than loans originated through 

direct channels.   

85. For example, by late 2007, the BAS Bond Trader had begun receiving 

an increase in inquiries and complaints from his customers suffering unexpectedly 

early incidences of default in recent BAS’ RMBS.  In response, the BAS Bond 

Trader undertook a performance analysis for recent BAS underwritten RMBS. 

86. On December 10, 2007, the BAS Bond Trader transmitted his initial 

findings to the BOAMS Principal, the BAS Bond Trader’s superiors at the RMBS 

desk at BAS and other BOAMS employees.  The email noted the decline in the 

performance of the 2006 and 2007 vintages of BANA-originated loans that had 

been securitized in RMBS offerings.  Attached to the transmittal email was a 

spreadsheet listing the 170 loans that had first payment defaults, early payment 

defaults, and severe delinquencies. 

87. In that email, the BAS Bond Trader stated:  



 
 

 

 
22 

  

[P]erformance of [BANA] originated loans has declined 
sharply…. It is imperative that we remain proactive in 
researching our skyrocketing delinquency issues and resolve 
swiftly and efficiently.  We have been doing some analysis . . . 
into all BofA originated loans that were securitized by [BANA 
and BOAMS] over the course of 2007.  In looking at the pay 
histories post securitization, what has become apparent is a 
number of loans with questionable payment histories that 
indicate possible instances of fraud. 

 
88. In response to that email, the BOAMS Principal acknowledged that 

“the performance of [recent BANA-originated mortgage loans] is worse than prior 

vintages.” 

89. In a December 10, 2007 email to a member of BANA’s quality 

assurance department, the BOAMS Principal acknowledged “the performance of 

[BANA-sponsored RMBS] deals is deteriorating at a rapid pace, we are attempting 

to find out the reason why so many loans are going [delinquent] so early in the 

deal’s life.”   

90. On January 15, 2008, shortly before the closing of the BOAMS 2008-

A offering, the BAS Bond Trader sent employees of BANA (again including the 

BOAMS Principal) and BAS an email following up on his December email to the 

same group.  This email updated the data contained in the BAS Bond Trader’s 

earlier email and provided a more detailed analysis. 



 
 

 

 
23 

  

91. In this more detailed analysis the BAS Bond Trader communicated 

that of the BANA originated loans securitized in 2007 with questionable payment 

histories, 77% of the loans with first and early payment defaults originated from 

the wholesale channel and 80% of the loans flagged as severely delinquent 

originated from the wholesale channel. 

92. In concluding his email, the BAS Bond Trader wrote that while he 

appreciated that the wholesale channel was now closed, BANA must accept 

responsibility for its underwriting and origination errors that were causing losses to 

RMBS investors:  

[T]he poorly originated product from 2007 still needs ownership 
for the origination flaws and responsibility for the poor 
performance must be pushed back to the origination side of the 
business. The pricing provided for product from the 
securitization side of the business was never intended for early 
payment default or first payment default loans.  The “‘originate 
to distribute’ model is broken . . . . 

   
93. In response to these emails from the BAS Bond Trader, the BOAMS 

Principal launched an internal investigation of the loans identified by the bond 

trader.   

94. The internal investigation initially entailed a review of whether any of 

the loans identified on the trader’s spreadsheet had already been subjected to 

BANA’s regular internal quality assurance review. 



 
 

 

 
24 

  

95. Before the offering of BOAMS 2008-A closed, the BOAMS Principal 

learned from the initial steps of that internal investigation that BANA’s internal 

quality assurance group had previously sampled and reviewed 35 loans on the 

bond trader’s spreadsheet, and that the common element linking these loans was 

that the vast majority were originated through the wholesale channel. 

96. Despite the recognition by BOAMS Principal that the poor 

performance noted by the bond trader stemmed largely from loans originated 

through the wholesale channel, the BOAMS Principal did not evaluate whether the 

prospectus or other disclosure documents for BOAMS 2008-A should be revised 

so as to disclose the significant percentage of wholesale loans and the risks 

associated with those loans. 

97. Despite receiving both of the bond trader’s emails on January 15, 

2008, the BAS Managing Director did not ask anyone to perform any analysis 

whatsoever of the wholesale channel.  The BAS Managing Director did not request 

such an analysis despite the bond trader’s focus on the wholesale channel and the 

BAS Managing Director’s understanding that it would be necessary to conduct a 

much more focused analysis of the wholesale channel to determine if the wholesale 

channel was producing more severely delinquent loans, 



 
 

 

 
25 

  

98. The BAS Managing Director also did not evaluate whether the 

problems with wholesale loans identified by the BAS Bond Trader warranted a 

revision of the BOAMS 2008-A disclosure documents. 

99. Reports created and distributed by BANA for 2007 mortgage loan 

originations (“Performance Reports”) also showed that mortgage loans originated 

though the wholesale channel in the latter half of 2007 (i.e. the same period as the 

mortgage loans in BOAMS 2008-A were originated) were performing substantially 

worse than direct channel loans originated during the same time.   

100. The Performance Reports, among other things, tracked the number of 

mortgages originated by BANA in a particular quarter that had ever been 90 or 

more days delinquent (an “Ever 90” delinquency) during a particular quarter. 

101. The BOAMS Principal and BAS Managing Director had access to and 

regularly reviewed these Performance Reports. 

102. The Performance Report for the fourth quarter of 2007 was available 

to the BOAMS Principal and BAS Managing Director in January 2008, prior to the 

closing of the BOAMS 2008-A offering. 

103. That report showed that the percentage of wholesale loans originated 

in the third quarter of 2007 that experienced an Ever 90 delinquency within the 

first three months after origination was more than double the percentage of other 



 
 

 

 
26 

  

mortgages originated during that same period that experienced an Ever 90 

delinquency within the first three months after origination.             

104. The Bank of America Entities were well aware in advance of BOAMS 

2008-A’s issuance that the most severe performance problems for mortgage loans 

within BANA affiliated securitizations, at a more than 2:1 ratio, were coming from 

the wholesale channel. 

105. No specific disclosure of the material performance risk presented by 

mortgage loans originated through wholesale channels was made to BOAMS 

2008-A investors.   

iii. Higher Risk of Churning and Prepayment for Wholesale Loans 
 

106. The Bank of America Entities also knew that loans originated in the 

wholesale channel posed an additional risk when compared to the direct channel:  

churning and the resulting increase in prepayment.   

107. Despite knowledge of the heightened prepayment risk, the Bank of 

America Entities failed to disclose this risk to investors. 

108. “Churning” in the context of wholesale loan origination describes 

instances in which a mortgage broker approaches an existing customer who 

recently obtained a mortgage facilitated by the broker and convinces the customer 

to refinance the mortgage. 



 
 

 

 
27 

  

109. While there may be an economic benefit to the customer as a result of 

decreases in interest rates, the mortgage broker’s incentive is to generate an 

additional sales commission through the refinance. 

110. When a mortgage loan that has been securitized refinances, the 

principal balance is paid through the securitization cash flow structure as 

appropriate, but no additional interest payments are attributable to the loan.  As a 

result, prepayment lowers the return (or profit) that investors can earn. 

111. On December 14, 2007, BAS’ RMBS trading strategy desk, a group 

that researched trends in the RMBS market, issued a report entitled “Outlook for 

the RMBS Market in 2008.”  The report was distributed widely within BANA, 

BAS, and BOAMS and to select BAS customers. 

112. The RMBS trading strategy desk analyzed BANA originated 

wholesale channel loans, and found that such loans were “susceptible to ‘churning’ 

and ‘planned refinancings’ ” by wholesale brokers who would approach borrowers 

to refinance their loans (i.e. repay the first lender with a loan from another lender) 

after the expiration of the “premium recapture” and “non-solicitation” periods. 

113. Both the “premium recapture” and the “non-solicitation” periods are 

generally set forth in the broker’s compensation agreement with the lender.  The 

“premium recapture” period is the period of time in which the lender can recover 



 
 

 

 
28 

  

any premium paid to the broker for the loan if the loan prepays.  The “non-

solicitation” period is a specified period of time in which the broker is prohibited 

by the lender from soliciting the borrower to refinance the loan.  

114. Within the BAS report, wholesale loans had averaged 5% - 10% 

higher prepayment speeds over direct channel loans as measured under the industry 

metric of “constant prepayment rate” (“CPR”).  

115. CPR is one of the primary metrics in evaluating and pricing RMBS, as 

the expected duration of payment of the underlying loans is materially impacted by 

the speed and volume of prepayment.   

116. The report shows that wholesale loans were likely to prepay faster 

than their direct channel counterparts because the brokers could earn further 

commissions by re-approaching their former clients and soliciting the client to 

refinance. 

117. Moreover, in November 2007, as the data for the trading desk 

prepayment study was being compiled, BAS changed its internal CPR modeling to 

specifically account for and include wholesale channel concentration data in order 

to project prepayment speeds.   



 
 

 

 
29 

  

118. By December 2007, the BOAMS Principal and BAS Managing 

Director had access to a statistical analysis evidencing the realized impact on CPR 

of wholesale channel churning. 

119. Not only did BAS and BANA, in preparing and reviewing the offering 

documents, and BOAMS in filing the offering documents, fail to disclose to 

potential BOAMS 2008-A investors the risk of churning or the relevant statistics 

they had generated relating to churning, but they represented to investors that they 

were not aware of any statistics that could provide investors a basis to predict 

prepayments. 

120. Specifically, in the prospectus supplement that BOAMS filed with the 

Commission, BOAMS stated that it was “not aware of any existing statistics that 

provide a reliable basis for investors to predict the amount or the timing of receipt 

of prepayments on the [m]ortgage [l]oans” underlying BOAMS 2008-A. 

121. BOAMS 2008-A’s performance in the first year after issuance 

evidences the churning warned of in BAS’ December 2007 report. 

122. Once wholesale loans in BOAMS 2008-A passed the three month 

“premium recapture” and “non-solicitation” period described in the BAS 

December 2007 report, such loans disproportionately prepaid compared to the 

direct channel loans securitized in BOAMS 2008-A. 



 
 

 

 
30 

  

123. BOAMS 2008-A contained 588 (49.37% of the entire BOAMS 2008-

A pool by number) wholesale loans that were originated in October and November 

of 2007. 

124. The large concentration of October and November 2007 wholesale 

loans magnified the importance of this information, as the three month premium 

recapture and non-solicitation periods would have just ended at the time of, or 

shortly after, the BOAMS 2008-A securitization closed in January 2008. 

125. In contrast, BOAMS 2008-A contained 127 (10.66% of the entire 

BOAMS 2008-A pool by number) direct channel loans originated in October and 

November of 2007 – a ratio of almost 5 wholesale loans to every 1 direct channel 

loan. 

126. After the first three months of securitization, the ratio for the refinance 

of those loans was 13.5 wholesale channel refinances to every 1 direct channel 

refinance. 

127. The disproportionate prepayment lasted for the first twelve months 

after securitization.  Though the prepayment ratio of wholesale loans to direct 

loans originated in October and November of 2007 decreased to 10:1, it was still 

double the ratio, 5:1, of all wholesale loans to direct loans originated in October 

and November of 2007. 



 
 

 

 
31 

  

C. Failure to Provide Required Channel Information 
 

128. By failing to disclose the wholesale channel concentration as well as 

the specific risks arising from the unique characteristics associated with the loans 

in BOAMS 2008-A, the Bank of America Entities did not comply with the 

disclosure requirements in Regulation S-K and subpart Regulation AB. 

129. Regulation S-K Item 503 [17 C.F.R. § 229.503] requires that an issuer 

“provide, under the caption ‘Risk Factors’ a discussion of the most significant 

factors that make the offering speculative or risky.” 

130. Item 503 further specifies that an issuer is not to “present risks that 

could apply to any issuer or any offering” and should instead “[e]xplain how the 

risk affects the … securities being offered.”   

131. Moreover, by failing both to disclose the fact that BOAMS 2008-A 

consisted of 72% by UPB of wholesale loans and the specific risks associated with 

such a high concentration of wholesale loans, the Bank of America Entities did not 

comply with the disclosure requirements of subpart Regulation AB. 

132. Regulation AB Items 1103, 1104, and 1111 [17 C.F.R. §§ 229.1103, 

229.1104, and 229.1111] require an issuer to provide information about the 

origination channel of the loans and the material characteristics of the asset pool.  



 
 

 

 
32 

  

Item 1111 of Regulation AB requires these disclosures irrespective of any risk they 

may pose. 

133. The Bank of America Entities did not provide such information. 

II. False Statements Regarding Compliance with Underwriting Standards 
 

134. In addition to the material misrepresentations and omissions regarding 

the wholesale-originated mortgage loans and failures to comply with Securities Act 

Regulation S-K and subpart Regulation AB [17 C.F.R. § 229 et seq.], the 

prospectus for BOAMS 2008-A misrepresented to investors that the “[m]ortgage 

[l]oans will have been underwritten materially in accordance with … [BANA]’s 

underwriting standards….” 

135. In the PSA for BOAMS 2008-A, BANA made the misrepresentation 

that the mortgage loans underlying BOAMS 2008-A were “underwritten in 

accordance with the applicable [u]nderwriting [g]uidelines in effect at the time of 

origination with exceptions thereto exercised in a reasonable manner.” 

136. As underwriter, BAS was responsible for drafting and reviewing the 

language within the Offering Documents that contained the false and misleading 

statements concerning compliance with underwriting guidelines. 

137. In connection with the offer and sale of interests in BOAMS-2008-A, 

the BOAMS Principal executed a certification on behalf of BOAMS that 



 
 

 

 
33 

  

represented, among other things, that the mortgages backing BOAMS 2008-A 

“conform in all material respects” to BANA’s underwriting guidelines. 

138. Finally, the BOAMS Principal reviewed and signed the Underwriting 

Agreement for BOAMS 2008-A, and that agreement was filed with the 

Commission in connection with the offer and sale of BOAMS 2008-A to investors.  

In that agreement, BAS represented that the BOAMS 2008-A prospectus as filed 

did not “include any untrue statement of a material fact or omit any material fact 

required to be stated therein necessary to make the statements contained therein, in 

light of the circumstances under which they were made, not misleading”   

139. These representations were materially false.  In fact, a substantial 

percentage of the mortgages underlying BOAMS-2008-A contained material 

deviations from BANA’s underwriting guidelines. 

A. Deviation from Guidelines 

140. These material deviations include, among other things:  (1) 

misrepresented occupancy status; (2) ineligible appraisals; (3) failure to verify 

employment per BANA underwriting guidelines; (4) incorrect calculation of 

income or debts, without which the relevant mortgage would have exceeded 

applicable ratios; (5) unreasonable stated income; (6) missing, unsigned, or 



 
 

 

 
34 

  

incomplete Internal Revenue Service Form 4506-T; and (7) BANA indicators of 

potential mortgage fraud for which there is no available resolution. 

141. For example, in one mortgage loan file, the appraised value of the 

home was recorded as $781,000 as of August 17, 2007.  That same home had sold 

for $501,000 on March 29, 2007, and the appraiser noted that there had been no 

material improvements since the property was last sold.  The appraisal provided no 

explanation for the 55.8% increase in value over just 4½ months.      

142. In another loan file, the borrower represented that the loan was for the 

purchase of his primary residence.  This residence, however, was located more 

than 2,600 miles from the borrower’s stated place of employment.  There is no 

explanation in the file of how the borrower’s representations about his employment 

could be squared with his representations about the use of the loan to acquire a 

primary residence. 

143. In another loan file, the loan application indicates that the borrower 

was employed as an “Insurance Sales Producer” in Santa Barbara, California with 

4 years of experience and a monthly income of $13,565.  The salary for an 

Insurance Agent in the Santa Barbara, California metropolitan area at the time was 

$4,857 a month, according to accepted mortgage industry databases.  There is no 

evidence in the loan files that the underwriter resolved this discrepancy. 



 
 

 

 
35 

  

144.  In another loan file, the loan application indicates that the borrower 

was employed as “Director” of a school in Los Angeles, California with 11 years 

of experience and a monthly income of $19,500.  The employment verification in 

the loan file, however, showed that the borrower was employed by the school as a 

“Chief Librarian.”  The top wages for librarians in the Los Angeles, California 

metropolitan area at the time was approximately $7,000 per month, according to 

the Bureau of Labor Statistics. There is no evidence in the loan files that the 

underwriter resolved this discrepancy. 

145. Another mortgage loan that closed in September 2007 was included in 

the BOAMS 2008-A despite BANA’s suspicion that the borrower had made 

fraudulent representations on the loan application.  In the loan application, the 

borrower represented that he intended to use the collateral as his primary residence.  

In a separate mortgage loan application, completed at the same time the first loan 

closed and processed by the same BANA loan officer, the same borrower 

represented that a different property would be his primary residence.  BANA was 

undeniably aware of this apparent fraud before the BOAMS 2008-A offering 

closed because, by December 2007, it brought these facts to the attention of law 

enforcement.      



 
 

 

 
36 

  

146. Loans that were materially non-compliant with underwriting 

guidelines were  50% more likely to default and 20% more likely to prepay than 

the total pool population – each a significant negative impact on the relative 

performance of BOAMS 2008-A. 

147. The Bank of America Entities knew or should have known that the 

representations in the BOAMS 2008-A Offering Documents and related documents 

given to investors regarding the material compliance with underwriting standards 

were false.   

148. The QARs for August through November 2007, which corresponded 

to the exact periods in which the mortgage loans for BOAMS 2008-A were 

underwritten by BANA, were reviewed by representatives of each of the Bank of 

America Entities, including the BOAMS Principal and the BAS Managing 

Director.  These QARs revealed a significant percentage of the loans originated by 

BANA, which the Quality Assurance group had randomly sampled, had “serious or 

critical exceptions” in underwriting. 

149. Specifically, these reports showed that, of the mortgage loans 

randomly sampled that were originated between August and December 2007 and 

were not government insured or guaranteed, as much as 10.5% had “serious or 

critical underwriting exceptions.”  The three most prevalent exceptions noted were 



 
 

 

 
37 

  

“borrower misrepresentation of employment,”  “borrower misrepresentation of 

stated income” and “occupancy issues.” 

150. The QARs for this period also document the disturbing fact that the 

overall underwriting exception rate for BANA originated loans had more than 

doubled between 2005 to 2007, such that by the point in time BOAMS 2008-A was 

being securitized more than 8% of the loans sampled for the year 2007 had 

“serious or critical exceptions” to underwriting.  No disclosure of this more than 

doubling of “serious or critical exceptions” to underwriting was ever made to 

investors. 

151. These trends were particularly relevant to BOAMS 2008-A, given its 

wholesale channel composition, as “serious or critical exceptions” in wholesale 

channel underwriting by November 2007 were at 16% – more  than twice the 

overall “serious or critical exceptions” rate. 

152. The BOAMS Principal admitted that, by the time the BOAMS 2008-

A was being offered and sold, she and other BANA employees were aware of a 

growing trend in serious and critical underwriting exceptions in mortgage loans 

originated by BANA, but did not understand the cause of this trend.  

153. Despite all of the evidence in the contemporaneous QARs indicating a 

material number of underwriting exceptions were almost certain to exist within the 



 
 

 

 
38 

  

loans underlying BOAMS 2008-A, BAS failed to engage in any independent due 

diligence to determine whether the loans in BOAMS 2008-A materially complied 

with BANA’s underwriting guidelines. 

154. Historically, BAS had commissioned an independent due diligence 

testing of the loans underlying RMBS that it was underwriting, so that BAS could 

identify and remove loans that did not comply with guidelines from the loan pool 

and also to provide a basis for representations that the remaining loans complied 

with underwriting guidelines. 

155. For the three BOAMS RMBS as to which BAS performed this loan 

level due diligence in 2007, the independent findings identified that more than 40% 

of the mortgages sampled did not conform with BANA’s underwriting guidelines, 

and that even after a review of all potential compensating factors, a material 

amount of the mortgages sampled needed to be removed from these prior BOAMS 

RMBS due to underwriting errors.   

156. Hence, at the point in time at which due diligence was most justified 

given the prior due diligence reports and the findings of the current QARs and was 

most likely to uncover and reveal material numbers of underwriting errors, the 

BAS Managing Director and others at BAS made the decision not to perform any 

due diligence on the mortgage loans underlying BOAMS 2008-A. 



 
 

 

 
39 

  

157. Had BAS engaged in such independent due diligence, had BAS 

employed adequate underwriting procedures, or had BAS employed adequate 

quality assurance procedures, BAS likely would have discovered the material 

number of loans in the BOAMS 2008-A loan pool that deviated from BANA’s 

underwriting guidelines. 

158. By representing in the BOAMS 2008-A Offering Documents that the 

loans in BOAMS 2008-A conformed with BANA’s underwriting guidelines, when 

in fact a material amount of those loans did not, each of the Bank of America 

Entities made false and misleading representations to investors that understated the 

risks associated with BOAMS 2008-A. 

B. BANA’s failure to comply with its underwriting guidelines when 
calculating data in its loan tapes 

159. Additionally, BANA’s underwriting guidelines included prescribed 

methodologies for calculating certain ratios, such as DTI and OCLTV.   

160. BANA failed to materially comply with its own underwriting 

guidelines in calculating these key ratios. 

161. Specifically, approximately 29% of the loans securitized in BOAMS 

2008-A contained DTI calculation errors of greater than 5%, and approximately 



 
 

 

 
40 

  

7% of the loans securitized in BOAMS 2008-A contained OCLTV calculation 

errors of greater than 5%. 

162. The BOAMS 2008-A Offering Documents and loan tapes reported the 

DTI and OCLTV ratios, without disclosing that the ratios for many of the loans 

had been calculated in a manner that did not comply with BANA’s underwriting 

guidelines.   

163. BANA’s failures to comply with its own underwriting guidelines 

resulted in BANA making repeated misrepresentations regarding DTI and OCLTV 

that it knew would be distributed to investors and publicly filed with the 

Commission. 

164. BAS made misrepresentations to investors and ratings agencies by 

providing loan tapes and summary tables to investors and ratings agencies that 

contained these misrepresentations regarding DTI and OCLTV. 

165. BOAMS made misrepresentations to investors and others by publicly 

filing with the Commission loan tapes and summary tables to investors and ratings 

agencies that contained these misrepresentations regarding DTI and OCLTV. 

166. These misrepresentations of the Bank of America Entities served to 

mislead investors about the risks associated with BOAMS 2008.41 

  

167. BANA’s underwriting procedures and quality assurance processes 

failed to uncover these systemic failures to accurately calculate DTI and OCLTV 

ratios. 

C. Additional Misrepresentations in Loan Tapes by BAS 
 

168. In addition to underwriting errors contributing to false statistical 

information being communicated to investors, BAS incorrectly grouped and 

summarized BANA’s OCLTV for the underlying loans and subsequently provided 

further incorrect information for OCLTV to investors and ratings agencies for a 

material number of BOAMS 2008-A loans. 

169. As part of the underwriting and solicitation process, analysts at BAS’ 

RMBS trading desk took the data received from BANA and compiled it into 

summary tables and investor focused loan tapes. 

170. Investors used these materials to make pricing decisions and to 

internally model expected performance of the securitization, while the ratings 

agencies similarly used these materials to determine necessary credit enhancement 

and ratings for the pool. 

171. BAS’ summaries of OCLTV, however, inaccurately represented the 

OCLTV as found by BANA. 



 
 

 

 
42 

  

172. When analysts at BAS calculated the OCLTV in the BOAMS 2008-A 

loan tape for investors, they improperly excluded the entire home equity line of 

credit or portions thereof  for approximately 7% of the mortgage loans backing 

BOAMS 2008-A.   

173. A significant majority of the loans whose OCLTV was miscalculated 

by BAS increased in OCLTV by 5% or more when corrected. 

174. BAS overstated the number of loans with OCLTV at or below 80% 

and understated the number of loans with OCLTV above 80%. 

175. 80% OCLTV is a threshold requirement for many of the applicable 

underwriting guidelines and mortgage insurance requirements. 

176. By failing to accurately report the OCLTV of a material amount of the 

loans in BOAMS 2008-A, BAS made false and misleading representations to 

investors and rating agencies.  As a result, a material amount of the BOAMS 2008-

A pool was riskier than disclosed to both investors and rating agencies. 

III. Failure to File Written Communications as Free Writing Prospectus 

177. BOAMS 2008-A was structured after a long series of communications 

with potential investors. 

178. BAS regularly communicated with potential investors until such 

investors were ready to commit themselves to investing in a transaction. 



 
 

 

 
43 

  

179. BAS provided potential investors with various information concerning 

the proposed RMBS transaction that would become BOAMS 2008-A. 

180. This information would often include preliminary loan tapes. 

181. As discussions progressed with potential investors, BAS sent two 

entities a preliminary loan tape that included data identifying loan origination 

channels. 

182. A majority of the loans in the preliminary loan tapes became a part of 

the final structure of BOAMS 2008-A. 

183. BAS also provided loan tapes containing origination channel 

information to Standard & Poor’s, who was responsible for rating BOAMS 2008-

A. 

184. Neither BOAMS nor BAS filed with the Commission all of the 

preliminary loan tape information that BAS shared with the potential investors.  

185. The potential investors who received these loan tapes committed to 

purchasing BOAMS 2008-A shares prior to the time the structure was finalized. 

186. BOAMS and BAS failed to file with the Commission any loan tapes 

at any point in time that contained the percentage of the mortgage loans underlying 

BOAMS 2008-A that were originated through the wholesale channel. 



 
 

 

 
44 

  

187. The loan tapes provided by BAS trading desk employees to certain 

investors via email are written communications constituting free writing 

prospectuses under the Securities Act. 

188. BOAMS was required to file those loan tapes with the Commission 

through EDGAR in order to use them as written communications. 

189. BOAMS did file a different loan tape on EDGAR as a free writing 

prospectus that omitted the wholesale origination channel information, which made 

the loan tape that was filed materially misleading. 

190. BAS did not have adequate procedures in place to ensure that all 

communications with investors were reviewed for purposes of complying with the 

Commission’s filing requirements. 

COUNT I—FRAUD 
 

Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act 
[15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)] 

 
191. Paragraphs 1 through 190 are hereby realleged and are incorporated 

herein by reference. 

192. From at least November 2007, through at least January 2008, 

Defendants, in the offer and sale of the securities described herein, by use of means 



 
 

 

 
45 

  

and instruments of transportation and communication in interstate commerce and 

by use of the mails, directly and indirectly: 

 a. obtained money and property by means of untrue statements of 

material fact and omissions to state material facts necessary in order to make the 

statements made, in light of the circumstances under which they were made, not 

misleading; and 

 b.  engaged in transactions, practices and courses of business 

which would and did operate as a fraud and deceit upon the purchasers of such 

securities, 

all as more particularly described above. 

193. By reason of the foregoing, Defendants, directly and indirectly, have 

violated and, unless enjoined, will continue to violate Sections 17(a)(2) and 

17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)]. 

COUNT II—FAILURE TO FILE PROSPECTUS 

Violations of Section 5(b)(1) of the Securities Act 
[15 U.S.C. §§ 77e(b)(1)] 

 
194. Paragraphs 1 through 190 are hereby realleged and are incorporated 

herein by reference. 



 
 

 

 
46 

  

195. From at least November 2007, through at least January 2008, BAS and 

BOAMS, directly or indirectly made use of means and instruments of transportation 

or communication in interstate commerce or of the mails to carry or transmit a 

prospectus relating to a security with respect to which a registration statement had 

been filed without ensuring that the prospectus met the requirements of Section 10 of 

the Securities Act. 

196. By reason of the foregoing, BAS and BOAMS, directly and indirectly, 

have violated and, unless enjoined, will continue to violate Section 5(b)(1) of the 

Securities Act [15 U.S.C. § 77e(b)(1)].   

PRAYER FOR RELIEF 

 WHEREFORE, Plaintiff Commission respectfully prays for: 

I. 

 Findings of fact and conclusions of law pursuant to Rule 52 of the Federal 

Rules of Civil Procedure, finding that Defendants committed the violations alleged 

herein. 

II. 

 A permanent injunction enjoining BANA, its officers, agents, servants, 

employees, and attorneys from violating, directly or indirectly, Section 17(a) of the 

Securities Act [15 U.S.C. §77 q(a)]. 



 
 

 

 
47 

  

III. 

 A permanent injunction enjoining BAS, BOAMS, their officers, agents, 

servants, employees, and attorneys from violating, directly or indirectly, Sections 

5(b) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(b) and 77 q(a)]. 

IV. 
 

 An order requiring the disgorgement by Defendants of all ill-gotten gains, 

losses avoided, or unjust enrichment with prejudgment interest, to effect the remedial 

purposes of the federal securities laws. 

V. 

 An order pursuant to Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] 

imposing civil penalties against Defendants.  

VI. 

 Such other and further relief as this Court may deem just, equitable, and 

appropriate in connection with the enforcement of the federal securities laws and for 

the protection of investors.  

 

 The Commission demands a jury trial. 



 
 

 

 
48 

  

 

Dated: August 6, 2013 

Respectfully submitted, 
 
 
/s/ Kristin B. Wilhelm        

 William P. Hicks 
 Associate Regional Director 
 Georgia Bar No. 35169 
 Email:  [email protected] 
   
 M. Graham Loomis 
 Regional Trial Counsel 
 Georgia Bar No. 457868 

    Email:  [email protected] 
  
 Kristin B. Wilhelm 
      Senior Trial Counsel 
      Georgia Bar No. 759054 
      Email: [email protected] 
 
      Mark Eric Harrison 
      Senior Counsel 
      Massachusetts Bar No. 640487 
      Email:  [email protected] 
        
     COUNSEL FOR PLAINTIFF 
     Securities and Exchange  Commission 
     950 East Paces Ferry Road, N.E. 
     Suite 900 
     Atlanta, Georgia 30326-1382 
     Tel: (404) 842-7600 
     Fax: (404) 842-7666 

mailto:[email protected]