America’s second largest lender has reached a $16.65 billion settlement with US federal authorities for selling toxic mortgages misleading investors, the Justice Department said Thursday.
“This historic resolution – the largest such settlement on
record – goes far beyond ‘the cost of doing business,’”
Attorney General Eric Holder said in a statement posted on the US Justice Department
website on Thursday.
The bank will pay out $9.65 billion in cash and $7 billion for
consumer relief – such as modified home loans and refinanced
mortgages.
“Under the terms of this settlement, the bank has agreed to
pay $7 billion in relief to struggling homeowners, borrowers, and
communities affected by the bank’s conduct. This is appropriate
given the size and scope of the wrongdoing at issue,” the
statement says.
The bank has agreed to pay a $5 billion ‘civil penalty’ to settle
claims under the Financial Institutions Reform and Recovery
Enforcement Act (FIRREA), a federal law introduced after the loan
crisis in the 1980s.
To date, President Obama’s Financial Fraud Enforcement Task Force
and its Residential Mortgage-Backed Securities (RMBS) Working
Group, have collected $36.65 billion from banks to redistribute
to consumers and investors misled by the country’s leading
financial institutions.
The fine is the largest single compensation settlement, beating
out JPMorgan Chase Co’s $13 billion penalty paid in November 2013.
Citigroup, another major US bank, had to pay $7 billion in July.
In March, the bank was ordered to pay $9.5 billion to the Federal Housing Finance Agency
to resolve similar misconduct allegations. Since the financial
crisis, the bank has been ordered to pay over $60 billion in
fines, claims, and buying out mortgage bonds.
The bank admitted it misled investors about the quality of
mortgage loan sale prior to the housing crash, when banks lent
out too much money to homeowners who eventually could not pay off
their loans.
This eventually resulted in the collapse of the housing bubble
and the beginning of the recession in late 2007. The banks
defrauded investors about the condition of the loans, which led
to billions in losses while millions of Americans lost their
homes to foreclosure.
Three quarters of the loans in question came from Countrywide
Financial, which Bank of America acquired in 2009, along with
Merrill Lynch. In total, between 2004 and 2008, the groups sold
more than $965 billion in bad loans.
“In the run-up to the financial crisis, Merrill Lynch bought more
and more mortgage loans, packaged them together, and sold them
off in securities – even when the bank knew a substantial number
of those loans were defective,” US Attorney Paul J. Fishman
explained.
Article source: http://rt.com/business/181724-bank-of-america-17-billion/
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