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$16.65 billion BofA Settlement Gets Green Light

The record-setting settlement between Bank of America (BAC), the U.S. Department of Justice, certain federal agencies and six states to resolve claims over toxic residential mortgage-backed securities has cleared all of the regulatory and legal hurdles and is now finalized, according to a new report from Bloomberg.

In August, BofA agreed to a $16.65 billion settlement over toxic mortgages, collateralized debt obligations and an origination release on residential mortgage loans sold to Fannie Mae and Freddie Mac in the run-up to the financial crisis.

The settlement was held up until recently by political infighting at the Securities and Exchange Commission stemming from whether the bank would be granted relief from sanctions.

Last week, the SEC capitulated to Bank of America’s requests for relief and waived most of the additional sanctions.

Now that those complications have been ironed out, the massive settlement will proceed.

From the Bloomberg report:
The judgment signed yesterday by U.S. District Judge Max O. Cogburn Jr. in Charlotte, North Carolina, bars Bank of America from using deceit or fraud to sell securities. The lender agreed to the terms “without admitting or denying the allegations of the complaint.”

According to the Bloomberg report, the judgment from Coburn will require Bank of America to disgorge $109.2 million in profit, $6.62 million in interest and a civil penalty of $109.2 million.

As part of the original agreement with the DOJ and the other agencies, Bank of America admitted to failing to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims connected to more than $2 trillion in residential mortgage sales from 2004 through the first half of 2008 by the bank and certain companies it acquired.

As a result of the settlement, the lender will now pay a total of $9.65 billion in cash and provide approximately $7 billion worth of consumer relief.

At the time, U.S. Department of Housing and Urban Development (HUD) Secretary Julian Castro said: “This global settlement will strengthen the FHA fund and Ginnie Mae, and it will provide $7 billion in consumer relief with a focus on helping borrowers in areas that were the hardest hit during the crisis. HUD will continue working with the Department of Justice, state attorneys general, and other partners to take appropriate action to hold financial institutions accountable for their misconduct and provide consumers with the relief they need to stay in their homes. HUD remains committed to solidifying the housing recovery and creating more opportunities for Americans to succeed.”

According to the SEC filing, “Bank of America knew that such wholesale channel loans – described internally as “toxic waste” – presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment.”

“We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future,” Bank of American CEO Brian Moynihan said in August.

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