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Bank of America agrees to nearly $17B settlement

Published on NewsOK Modified: August 21, 2014 at 11:47 am •  Published: August 21, 2014
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Of the $16.65 billion the bank is paying in the settlement, almost $10 billion will be paid to settle federal and state civil claims by entities related to residential mortgage-backed securities, collateralized debt obligations and other types of fraud.

An independent monitor will determine whether Bank of America is satisfying its obligations under the settlement.

"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," said U.S. Attorney Paul Fishman, whose jurisdiction covers New Jersey.

"The failure to disclose known risks undermines investor confidence in our financial institutions," Fishman added.

The Bank of America settlement will resolve allegations that the bank and companies it later bought misrepresented the quality of loans they sold to investors. Most of the problem loans were sold by Countrywide Financial and Merrill Lynch before Bank of America bought them during the 2008 financial crisis.

Consumer advocates say previous settlements show that the amounts announced in enforcement actions can overstate their actual costs to the companies being penalized.

In the deal with JPMorgan in November, the Justice Department had a clear message for homeowners: Billions of dollars' worth of help was coming. Holder at the time described the appointment of an independent monitor who would distribute $4 billion set aside for homeowner relief.

The actual relief is more complicated than cash handouts, however.

Both Citigroup and JPMorgan earn credits under the settlement from a "menu" of different consumer-friendly activities, according to settlement documents. The options are effectively an update of the consumer relief previously provided through the national mortgage servicing settlement, a 2012 deal between state attorneys general and the major banks.

JPMorgan probably will earn its $4 billion in credits under the settlement through a total of $4.65 billion of activities that qualified as relief, according to a report by Enterprise Community Partners, a nonprofit run by executives from low-income housing groups and major banks.

More than half will come from principal reductions, with the rest earned through actions such as writing new loans in distressed areas, donating foreclosed properties to community groups and temporarily suspending payments on some loans.

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Associated Press writer Jeff Horwitz contributed to this report.