In the largest civil settlement ever reached by the U.S. and a single company, Bank of America agreed Thursday to pay $16.65 billion to the Department of Justice for selling toxic residential mortgage-backed securities in the years leading up to the financial crisis.
Attorney General Eric Holder said during a Thursday morning press briefing that the settlement with Bank of America marks a "historic step forward in our ongoing effort to protect the American people from financial fraud – and to hold accountable those whose actions threatened the integrity of our financial markets and undermined the stability of our economy."
Under terms of the settlement, BofA must pay $9.65 billion in cash to the Justice Department, several states, and other government agencies, and pay $7 billion in relief to struggling homeowners, borrowers and communities affected by the bank's conduct. "This is appropriate given the size and scope of the wrongdoing at issue," Holder said.
As part of the settlement, BofA will pay $245 million to the Securities and Exchange Commission relating to charges filed by the SEC in August 2013 alleging that the bank "in its own words 'shifted the risk' for losses to investors when it failed to disclose that more than 70% of the mortgages backing the RMBS offering called BOAMS 2008-A originated through its 'wholesale' channel of mortgage brokers unaffiliated with Bank of America entities."
The SEC also filed new charges Thursday in a settled administrative proceeding, in which Bank of America admits that it failed to disclose known uncertainties regarding potential increased costs related to mortgage loan repurchase claims stemming from more than $2 trillion in residential mortgage sales from 2004 through the first half of 2008 by the bank and certain companies it acquired.
To settle the new SEC case, BofA agreed to pay a $20 million penalty while admitting to facts set out in the SEC's order, which requires Bank of America to cease and desist from causing any violations and any future violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-13.
More than $490 million of the settlement will cover tax liabilities for consumers. "Unfortunately, because Congress has failed to extend a law ensuring that most of this relief would not be taxable income, this debt relief will create tax liability for many consumers," Holder said. He then called on Congress to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act of 2007.
Until Congress acts, Holder said, "the hundreds of thousands of consumers we have sought to help through our settlements with JPMorgan Chase, Citigroup, and now Bank of America may see a significant tax bill just as they are beginning to see the light at the end of a dark financial tunnel."
He added: "I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the 'cost of doing business.'"
