Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Associated With Countrywide Home Loans

Attorney General Eric Holder and Associate Attorney General Tony West announced today that the Department of Justice and Bank of America Corporation have reached a $16.65 billion settlement to resolve federal and state claims against Bank of America and its former and current subsidiaries, including Countrywide Financial Co. As part of this global agreement, the bank has agreed to pay a $5 billion penalty under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) – the largest FIRREA penalty ever – and provide billions of dollars in relief to struggling homeowners, including funds to help defray tax liability resulting from mortgage modification, forbearance, or forgiveness. Persons are not exempt from civil accusations, and Bank of America, its current or previous subsidiaries and affiliates, or any individuals are not immune from criminal prosecution.

Attorney General Holder stated, “This historic deal – the largest such settlement on record – goes far beyond ‘the cost of doing business.'” “Under the terms of the agreement, the bank will pay $7 billion in assistance to struggling homeowners, borrowers, and communities who have been harmed by the bank’s actions.” Given the scale and scope of the crime at hand, this is appropriate.”

This agreement is part of President Obama’s Financial Fraud Enforcement Task Force and its Residential Mortgage-Backed Securities (RMBS) Working Group’s ongoing efforts, which have recovered $36.65 billion for American consumers and investors to date.

“Today’s resolution with Bank of America, valued at approximately $17 billion, is the largest the department has ever reached with a single business in American history,” said Associate Attorney General West. “However, the significance of this agreement lies not just in its size; it is noteworthy because it achieves real accountability for the American people and helps to rectify the harm caused by Bank of America’s conduct through a $7 billion consumer relief package that could benefit hundreds of thousands of Americans still struggling to get out from under the weight of the financial crisis.

The Justice Department and the bank reached an agreement to resolve numerous of the department’s continuing civil investigations into the packaging, marketing, sale, arrangement, structuring, and issuance of RMBS, CDOs, and the bank’s underwriting and origination of mortgage loans. The settlement contains a statement of facts in which the bank admits to selling billions of dollars of RMBS without disclosing important facts about the quality of the securitized loans to investors. Investors, including federally insured financial institutions, lost billions of dollars when the RMBS crashed. The bank has also admitted that it created unsafe mortgage loans and lied to Fannie Mae, Freddie Mac, and the Federal Housing Administration about the quality of those loans (FHA).

Almost $10 billion will be paid to satisfy federal and state civil claims by various companies relating to RMBS, CDOs, and other types of fraud out of the record-breaking $16.65 billion settlement. To satisfy the Justice Department’s charges under FIRREA, Bank of America will pay a $5 billion civil penalty. Approximately $1.8 billion will be paid to settle federal fraud claims related to the bank’s mortgage origination and sale, $1.03 billion to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), and $135.84 million to settle Securities and Exchange Commission claims. In addition, the state of California will receive $300 million to settle claims, the state of Delaware will receive $45 million to settle claims, the state of Illinois will receive $200 million to settle claims, the Commonwealth of Kentucky will receive $23 million to settle claims, the state of Maryland will receive $75 million to settle claims, and the state of New York will receive $300 million to settle claims.

Bank of America will offer the remaining $7 billion in relief to hundreds of thousands of consumers who have been damaged by the financial crisis caused by Bank of America, Merrill Lynch, and Countrywide’s illegal activity. This relief will come in a variety of forms, including principal reduction loan modifications, which will allow many homeowners to no longer be underwater on their mortgages and gain significant equity in their houses. It will also include additional loans for creditworthy borrowers who are having difficulty obtaining financing, grants to help communities recover from the financial crisis, and money for affordable rental housing. Finally, Bank of America has committed to putting approximately $490 million into a tax relief fund to help alleviate some of the tax penalty that will be faced by consumers obtaining certain types of relief if Congress fails to renew the Mortgage Forgiveness Debt Relief Act of 2007’s tax relief coverage.

Bank of America will be monitored by an independent monitor to see if it is meeting its obligations. If Bank of America does not meet its obligations by Aug. 31, 2018, it must pay liquidated damages in the amount of the shortfall to organizations that will use the money to support state-based Interest on Lawyers’ Trust Account (IOLTA) organizations and NeighborWorks America, a non-profit that provides affordable housing and facilitates community development. The monies will be used for foreclosure avoidance and community revitalization, legal aid, housing counseling, and neighborhood stability by the groups.

This agreement also addresses the U.S. Department of Justice’s complaint against Bank of America, which was filed in August 2013. Concerning an $850 million securitization, the Attorney’s Office for the Western District of North Carolina was contacted. Bank of America admits that it promoted this securitization as being backed by “prime” mortgages originating by the bank and underwritten according to its requirements. Despite this, Bank of America knew that a significant number of the loans in the security were “wholesale” mortgages originated through mortgage brokers and that such loans were experiencing a significant increase in underwriting defects and a noticeable decrease in performance, according to its internal reporting. Despite these red flags, the bank offered these RMBS to federally supported financial institutions without undertaking any third-party due diligence on the securitized loans and without disclosing critical details to investors in the SEC-filed offering documents. The SEC brought a second complaint against Bank of America involving the same securitization, which is also being handled as part of this settlement.