Targets for Disciplinary Action in Mortgage Fraud Case : B of A Probe Names ‘Several’ Employees
A Bank of America internal investigation into employee involvement in an alleged mortgage securities fraud has identified “several” bank workers as targets for disciplinary action, the chief of the inquiry said Tuesday.
Top officials of the bank today will receive the first results of the investigative team’s inquiry into the mortgage problem, which led the firm to take a $95-million loss for the fourth quarter of 1984.
The bank already has suspended a number of its workers with pay pending the outcome of the investigation. Derrald Johnson, a bank vice president supervising the inquiry, would not name the workers nor say specifically how many were involved.
“ ‘Several’ means more than two,” he said.
The report is to go to Samuel H. Armacost, chairman of BankAmerica Corp., parent of San Francisco-based Bank of America. He and other top bank officials will decide what actions will be taken against the employees.
The lawyer for one of the suspended bank employees threatened legal action against Bank of America if his client, Mary R. Brown, is fired.
“We sure wouldn’t sit still. She’s been a loyal, hard-working employee for 23 years and she’s done nothing wrong. We’d start ringing their chimes,” said Laurie Belger, a Redondo Beach attorney. Brown was a trust officer at the bank’s Inglewood branch.
If Brown were fired, Belger said, “it would be rather obvious that they’re trying to save careers higher up, to use her as a sacrificial lamb. She was just following (her superiors’) orders.”
The investigation was launched last fall after the bank discovered that pools of mortgages for which it served as trustee and escrow agent were faulty. The bank was forced to pay $133 million to investors, mostly Eastern thrifts, when it learned that the properties were grossly overvalued, irregularities were found in their titles and insurers backing the mortgages failed to honor claims.
The investigative team, which in recent weeks has included 100 bank officials and outside lawyers, also is looking into possible means of recouping the losses. Last October, the bank sued Pacific American Insurance Co., a Delaware firm declared insolvent by regulators, seeking $27 million still owed on the mortgages and $50 million in punitive damages. Actions against the firm that packaged the mortgages and at least one other insurance firm that backed them are anticipated.
Bank of America also hopes for some recovery from insurers of its own employees, Johnson said.
“The bank is covered by several different types of insurance related to actions by employees and others on its premises,” he said. “Exactly what our possible recovery from those sources might be we will decide after reviewing the final report.”
In a related development, San Francisco-based Wells Fargo & Co., parent of Wells Fargo Bank, confirmed that it was seeking $9.4 million from a Montana insurance firm that guaranteed mortgage-backed securities for which Wells Fargo served as trustee.
A bank spokeswoman said Glacier General Assurance Co. of Missoula, Mont., backed $18 million in mortgages that are in default. The mortgages are held by four Eastern thrifts that have turned to Wells Fargo for payment.
“Glacier insured the pools, and obviously somebody is going to have to pay up because we do not believe we have the liability for covering any losses,” the spokeswoman said. She described the trustee role as “passive” and said: “We informed the investors of the situation, and we believe we carried out our responsibilities as trustee appropriately.”
California insurance regulators two weeks ago permanently barred Glacier from doing business in the state, saying it was financially unable to make good on some $200 million in mortgage guarantee bonds.
Glacier President John F. Hayden declined Tuesday to discuss the situation.
The case is linked to the Bank of America matter because the Bank of America branch in Inglewood served as escrow agent on the Wells Fargo mortgages. Glacier also has stopped paying Bank of America on some $89 million in policies on other mortgages for which the bank served as trustee and escrow agent. And National Mortgage Equity Corp. of Palos Verdes Estates put together the pools of mortgages for both banks.
