Mortgage Lending Abuses Cost Bank of America $17B – Largest-Ever Settlement
The Department of Justice has brokered a deal with financial giant Bank of America, in which the company will pay $17 billion to settle allegations that it and its subsidiaries purposely misled investors regarding toxic, mortgage-backed securities.
It’s the largest settlement of its kind in the nation’s history, and ends a long battle that stretches back to the 2008 financial crisis.
While big business sympathizers have already blasted the government for raking the bank across the coals, the fact is, the economic meltdown was triggered in large part by fraud perpetuated by the banking industry. Our Miami foreclosure lawyers saw firsthand the aftermath of this crisis, in which people were stripped of their homes, their jobs, suffered stagnant wages and lost life savings. People have been forced to start all over again.
Bank of America, meanwhile, will undoubtedly survive. The settlement is approximately equal to the bank’s total profit for the last three years. This latest agreement will bring the total amount of the bank’s tab to about $80 billion. Still, it’s worth noting the bank profited for years by perpetuating shady deals. Even if some weren’t carried out directly, many were conducted through subsidiaries – mainly, Countrywide Financial Corp. and Merrill Lynch & Co.
The bank’s CEO, Brian Moynihan, has been at the helm for the last four-plus years, and announced this would be the last major settlement connected to the housing crisis into which the bank would enter. Although the bank’s leaders insisted they were being unfairly punished for the actions of subsidiaries that occurred before they came under Bank of America control, prosecutors argued the bank reaped substantial profits from Merrill and purchased Countrywide – and its liabilities – without any outside pressure.
The company had pressed hard to have a significant portion of the settlement be in the form of homeowner aid (loan modifications, short sale agreements, etc.), as these options would have had less impact on the bank’s bottom line, However, the actual benefit to homeowners would be iffy.
Prosecutors insisted at least $9 billion of the deal will be paid out immediately in cash. Roughly $7 billion will be made in the form of homeowner aid. Several states are poised to walk away with more than $1 billion, though it was not immediately clear whether Florida would be one of those.
Leaders for most of the states we know for certain will receive large payouts have said the money will be funneled back into public pensions, which were depleted after losing money on toxic mortgage securities. A few, such as New York, have indicated the settlement money will go to general housing purposes.
The deal follows a settlement the Department of Justice reached last year with J.P. Morgan Chase & Co. for $13 billion and another $7 billion settlement with Citigroup. In each of those cases, the banks conceded to statements of fact that they had knowingly and intentionally misled investors regarding mortgage securities sales.
While the latest Bank of America deal could well go down as the largest settlement in the wake of the financial crisis, it probably won’t be the last. A number of actions are still pending. For example, federal prosecutors in Los Angeles are on the verge of filing a civil lawsuit against Angelo Mozilo, the former CEO of Countrywide, as well as several former executives with the firm, regarding shady lending practices. Mozilo had settled another civil lawsuit with the Securities and Exchange Commission over similar charges, in which he paid a $22.5 million fine and forfeited $45 million in profits.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.