Bank of America to pay record $16.6B in settlement with US
Bank of America has agreed to pay a record $16.65 billion settlement for misrepresenting the quality of toxic mortgage securities.
The bank will pay $9.65 billion to six states and several federal agencies. It will also provide $7 billion in consumer relief that includes reducing principal owed by underwater homeowners and paying to demolish foreclosed properties causing urban blight, the New York Times DealBook blog reports.
“For the Justice Department, which has come under fire for an uneven response to the financial crisis,” the Times says, “the case is intended as a signature moment and a warning shot to all of Wall Street.”
Attorney General Eric Holder announced the settlement today. The settlement is the largest on record between the federal government and a single company, report the Wall Street Journal (sub. req.) and theNational Law Journal (sub. req.), which links to the statement of facts (PDF).
Many of the allegations concern mortgage-backed securities sold by Countrywide Financial Corp. and Merrill Lynch & Co. before the companies were purchased by Bank of America. Bank of America lawyers had argued the bank felt pressured to buy Merrill and should not be held fully accountable for its actions. Prosecutors were unmoved, threatening last month to sue if the bank did not increase its settlement offer, the Times says.
According to Holder’s press release, the $7 billion in relief to consumers will take several forms, including principal reduction loan modifications, new loans to credit-worthy borrowers, donations to help communities recover from the financial crisis, and financing for affordable rental housing. Bank of America will also place more than $490 million in a fund to to help defray tax liability for homeowners whose mortgages are modified, in the event that Congress fails to extend the law that offered tax relief in such situations.
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