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The historic resolution “goes far beyond ‘the cost of doing business,’” U.S. Attorney General Eric Holder said this morning.
Holder called the money paid to struggling homeowners, borrowers and communities affected by the bank’s fraud appropriate, “given the size and scope of the wrongdoing at issue.”
It will “defray tax liability as a result of mortgage modification, forbearance or forgiveness,” he said.
The bank also has agreed to pay a $5 billion penalty as part of the deal, federal authorities said.
The settlement resolves federal and state claims against Bank of America and its former and current subsidiaries, including Countrywide Financial Corporation and Merrill Lynch.
However, it doesn’t release anyone from charges or absolve the bank or any of those involved from potential criminal prosecution, Holder emphasized.
New Jersey U.S. Attorney Paul J. Fishman joined several of his national colleagues at a news conference in Washington, D.C. this morning to announce the settlement.
The unprecedented deal, he said, “reflects the seriousness of the lapses that caused staggering losses and wider economic damage.”
As part of a national task force, Fishman’s office investigated bogus claims made by Merrill Lynch to investors in 72 RMBS throughout 2006 and 2007.
Merrill “regularly told investors the loans it was securitizing were made to borrowers who were likely and able to repay their debts,” the government said in a news release. “Merrill Lynch made these representations even though it knew, based on the due diligence it had performed on samples of the loans, that a significant number of those loans had material underwriting and compliance defects – including as many as 55 percent in a single pool.
“In addition, Merrill Lynch rarely reviewed the unsampled loans to ensure that the defects observed in the samples were not present throughout the remainder of the pools,” this morning’s release says. “Merrill Lynch also disregarded its own due diligence and securitized loans that the due diligence vendors had identified as defective.
“This practice led one Merrill Lynch consultant to ‘wonder why we have due diligence performed’ if Merrill Lynch was going to securitize the loans ‘regardless of issues.’
“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,” Fishman said this morning.
“The failure to disclose known risks undermines investor confidence in our financial institutions,” he said.
According to the Justice Department:
“Of the record-breaking $16.65 billion resolution, almost $10 billion will be paid to settle federal and state civil claims by various entities related to RMBS, CDOs and other types of fraud.
“Bank of America will pay a $5 billion civil penalty to settle the Justice Department claims under FIRREA.
“Approximately $1.8 billion will be paid to settle federal fraud claims related to the bank’s origination and sale of mortgages, $1.03 billion will be paid to settle federal and state securities claims by the Federal Deposit Insurance Corporation (FDIC), $135.84 million will be paid to settle claims by the Securities and Exchange Commission.
” In addition, $300 million will be paid to settle claims by the state of California, $45 million to settle claims by the state of Delaware, $200 million to settle claims by the state of Illinois, $23 million to settle claims by the Commonwealth of Kentucky, $75 million to settle claims by the state of Maryland, and $300 million to settle claims by the state of New York.
“Bank of America will provide the remaining $7 billion in the form of relief to aid hundreds of thousands of consumers harmed by the financial crisis precipitated by the unlawful conduct of Bank of America, Merrill Lynch and Countrywide.
“That relief will take various forms, including principal reduction loan modifications that result in numerous homeowners no longer being underwater on their mortgages and finally having substantial equity in their homes.
“It will also include new loans to credit worthy borrowers struggling to get a loan, donations to assist communities in recovering from the financial crisis, and financing for affordable rental housing.
“Finally, Bank of America has agreed to place over $490 million in a tax relief fund to be used to help defray some of the tax liability that will be incurred by consumers receiving certain types of relief if Congress fails to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act of 2007.
“An independent monitor will be appointed to determine whether Bank of America is satisfying its obligations. If Bank of America fails to live up to its agreement by Aug. 31, 2018, it must pay liquidated damages in the amount of the shortfall to organizations that will use the funds for state-based Interest on Lawyers’ Trust Account (IOLTA) organizations and NeighborWorks America, a non-profit organization and leader in providing affordable housing and facilitating community development.
“The organizations will use the funds for foreclosure prevention and community redevelopment, legal assistance, housing counselling and neighborhood stabilization.”
The government has recovered $36.65 billion to date for American consumers and investors in connection with the massive fraud that crippled our economy and destroyed countless lives.
Making it possible is the Residential Mortgage-Backed Securities (RMBS) Working Group, described as “federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.
“The RMBS Working Group brings together more than 200 attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, 10 U.S. Attorneys’ Offices, the FBI, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, the Office of the Special Inspector General for the Troubled Asset Relief Program, the Federal Reserve Board’s Office of Inspector General, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network, and more than 10 state attorneys general offices around the country.”
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