Bank of America Reaches a Record $16.65 Billion Settlement Over Toxic Mortgage Bonds

Bank of America

By The Charlotte Observer

Bank of America’s record $16.65 billion settlement with the U.S. government over toxic mortgage bonds requires the Charlotte bank to help struggling homeowners by modifying mortgages, forgiving principal and making loans to lower-income borrowers.

But it could take four years for all the aid to be parceled out, and not all troubled loans are eligible.

The settlement announced Thursday includes $7 billion in consumer relief that federal authorities said would help hundreds of thousands of Americans still struggling with fallout from the housing meltdown. The deal also calls for the bank to make $9.65 billion in cash payments to the government and six states.

It is the biggest civil settlement between a single company and the government and the latest instance of a major U.S. bank agreeing to pay billions of dollars to settle allegations of wrongdoing that fueled the worst economic crisis since the Great Depression.

In reaching the deal, the bank admitted that it, Countrywide Financial and Merrill Lynch took part in faulty mortgage-backed securities practices. Bank of America bought mortgage lender Countrywide in 2008 and investment bank Merrill Lynch in 2009.

Bank of America also admitted to underwriting government-insured home loans for borrowers who did not qualify for the loans. Many of those borrowers defaulted on mortgages and some lost their homes to foreclosure, the bank acknowledged in a “statement of facts” filed with the case.

“Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch and Countrywide sold billions of dollars of (mortgage bonds) backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the U.S. government,” U.S. Attorney General Eric Holder said in prepared remarks.

In a statement, Bank of America CEO Brian Moynihan said the accord resolves “significant” remaining legal exposure facing the bank over troubled mortgages. The deal, he said, “is in the best interests of our shareholders and allows us to continue to focus on the future.” Investors on Thursday boosted the bank’s shares more than 4 percent, to $16.16.

The government didn’t accuse any specific executives of wrongdoing, which has been a flash point for critics. The settlement does not release Bank of America or any individuals from potential criminal prosecution, the Justice Department said. It also doesn’t release any individuals from civil charges.

The settlement drew swift criticism Thursday from consumer advocates who said it won’t be enough to compensate victims of the housing crisis. Since 2007, lenders have repossessed more than 4 million properties nationwide and more than 92,000 in North Carolina, according to real estate data firm RealtyTrac.

Neighborhood Assistance Corp. of America said in a statement that, as with past government settlements involving large banks, Bank of America’s settlement “will provide little if any real help to stabilize and increase homeownership.”

NACA criticized the portions of the settlement that will go to the government, rather than homeowners and homebuyers.

“Instead, this money should be specifically allocated to aid communities and homeowners impacted by the abuses committed by Countrywide during the mortgage bubble,” the group said.

Borrowers in all 50 states are eligible to apply for relief, the bank said. But not all troubled borrowers can have their loan balances reduced. Mortgages held by Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, are not eligible for principal reduction, under government policy.

Advocates also criticized a provision giving the bank until August 2018 to provide the consumer relief.

“There should be a tighter rein on this,” said Bruce Marks, chief executive of NACA. “You’re going to see Bank of America trying to push it out faster, but the fact of the matter is it shouldn’t be four years on that.”

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