Bank of America Agrees to Pay Record Mortgage Settlement
Largest Housing Crisis Settlement Yet
Last week, Bank of America agreed to a record billion-dollar settlement with the U.S. Department of Justice over faulty mortgage securities, according to a recent article in Law360. During the financial crisis that began in 2008, Bank of America, along with two companies that it acquired, were accused of engaging in “faulty lending during the housing boom years.” Those additional units include Countrywide Financial and Merrill Lynch. Now, the bank will pay nearly $17 billion to “put to rest claims related to subprime mortgage practices.” To date, this is the biggest settlement connected to the housing crisis.
While this settlement is the largest related to mortgage fraud allegations and the real estate crash, it’s not the first. According to a story in the Washington Post, Bank of America is actually “the third Wall Street bank to reach a multibillion-dollar agreement with the Justice Department for allegedly misleading investors about the quality of bonds sold in the lead-up to the 2008 financial crisis.” You may remember that the other two banks that reached settlements with the Department of Justice included JPMorgan Chase and Citigroup.
Where Will the Settlement Money Go?
It’s clear that money from the settlement will end up in the hands of various state and federal authorities, but will the real estate investors who were harmed by Bank of America’s practices see any of the settlement money? While those people were “directly affected by the alleged misdeeds,” the language of the settlement has “no specific carve-out to compensate investors.” Rather, the money primarily is intended to “provide relief to homeowners and blighted communities.”
And the states that will see the most money primarily are those that were hardest hit during the mortgage crisis. About $1 billion of the money will go to California, Delaware, Illinois, Kentucky, Maryland, and New York. Those are also the states whose attorneys general had launched investigations into Countrywide Financial and Merrill Lynch practices. The money will go toward “the retirement funds of teachers, police officers, and firefighters.” In other words, relief will come in the form of public pension funds.
This won’t be the first time that mortgage-securities settlements were used to “replenish government pension funds ravaged by losses on risky mortgage bonds,” according to Associate Attorney General Tony West. Indeed, about $1 billion of the JPMorgan Chase settlement funds and about $291 million of the Citigroup money was allocated to states.
There’s a clear connection between real estate and public pension funds, as many of those funds were “invested heavily in mortgage securities in the run-up to the financial crisis.” Yet it turned out that “Wall Street banks were well aware that it was garbage, not gold, that they were peddling” to investors.
Indeed, according to Attorney General Eric H. Holder, Jr., “on multiple occasions—when confronted with concerns about their reckless practices—bankers continued to mislead investors about their own standards and to securitize loans with fundamental credit, compliance, and legal defects.” In other words, banks like Bank of America made serious mistakes resulting in serious financial harms that the recent settlement will help to repair.
If you have questions about your rights as a consumer, it’s very important to speak to an experienced Oak Park consumer protection attorney. We assist clients throughout the Chicago area and can answer your questions today.
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