The US government is suing Bank of America with fraud over the sale of $850 million worth of residential mortgage-backed securities. 

The Justice Department and the Securities and Exchange Commission both filed separate lawsuits in North Carolina, where BoA is based, accusing the firm of failing to disclose key risks and misrepresenting facts about the mortgages to investors in 2008.

The SEC claimed that the bank failed to tell investors that more than 70 per cent of the mortgages backing the investment originated through the bank’s wholesale channel of mortgage brokers outside of the bank's network, which made them more vulnerable to default. 

"Bank of America knew that such wholesale channel loans, described by Bank of America’s then chief executive as 'toxic waste', presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment," the SEC said in a statement.

It is estimated that total losses sustained by investors will exceed $100 million.

In its filing, the Justice Department said that BoA had "knowingly and wilfully misled" investors and that more than 40 per cent of the 1,191 mortgages in securitisation did not substantially comply with Bank of America’s underwriting standards in place at the time.

The government said it was seeking civil penalties from BoA, but did not specify the amount.

“Bank of America’s reckless and fraudulent origination and securitization practices in the lead-up to the financial crisis caused significant losses to investors. Now, Bank of America will have to face the consequences of its actions," said US Attorney for the Western District of North Carolina Anne Tompkins.

BoA denied the security failure was the fault of the bank and said it would refute the allegations in court.

"These were prime mortgages sold to sophisticated investors who had ample access to the underlying data and we will demonstrate that. The loans in this pool performed better than loans with similar characteristics (made and packaged into securities) at the same time by other financial institutions," the bank said in a statement.

"We are not responsible for the housing market collapse that caused mortgage loans to default at unprecedented rates and these securities to lose value as a result," the statement added.