BofA Reaches Record Settlement Over Bad Loans

August 21, 2014

Bank of America has reached a record $17 billion settlement stemming from its sale of mortgage-backed securities before the 2008 financial crisis. This marks the largest settlement from a bank related to the crisis, during which millions of Americans lost their homes to foreclosure. Other banks have also reached settlements: Last year, JPMorgan Chase & Co. agreed to pay $13 billion, and Citigroup coughed up $7 billion.

The Bank of America settlement was negotiated through a joint federal and state working group. Individual states are expected to share in the settlement. The bank will pay $10 billion in cash and provide consumer relief valued at $7 billion, The Associated Press reports.

As part of the settlement, Bank of America also must acknowledge that it made serious misrepresentations about the quality of its residential mortgage-backed securities that were issued by itself, Merrill Lynch, and Countrywide Financial. Most of the subprime loans come from Countrywide.

The securities sold to investors contained residential mortgages from borrowers who were unlikely to be able to repay their loans, but regulators say the bank promoted them as safe investments. Once the housing market collapsed, investors faced billions of dollars in losses due to the poor quality of the loans, The Associated Press reports.

Bank of America officials have declined to comment.

Source: “Bank of America Reaches Record Mortgage Settlement with U.S.,” The Associated Press (Aug. 20, 2014)