Bank of America will pay $16.65 billion in a settlement with the U.S. government and various states over soured mortgage bonds, under a landmark pact announced Thursday.
The deal, which has been expected for weeks, calls for the Charlotte, N.C., bank to pay $9.65 billion in cash and provide about $7 billion in consumer relief. The cash portion of the deal is made up of a $5.02 billion civil monetary penalty and $4.63 billion in other payments.
“This historic resolution — the largest such settlement on record — goes far beyond ‘the cost of doing business,'” U.S. Attorney General Eric Holder said in a statement. “Under the terms of this settlement, the bank has agreed to 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.”
The settlement means more than $1 billion in relief for almost 17,000 Floridians, said Florida Attorney General Pam Biondi in a release. Florida’s share accounts for about one-seventh of the total allocated for direct relief under the settlement.
Potentially eligible borrowers will be contacted in the fourth quarter to review new options, a Bank of America spokesman said.
The settlement does not release Bank of America, its current or former subsidiaries, affiliated companies or any individuals from potential criminal prosecution, the Justice Department said. The settlement also does not release any individuals from civil charges.
The deal is the result of federal and state probes largely into alleged mortgage misconduct by Countrywide Financial and Merrill Lynch prior to Bank of America’s purchase of the companies.
“We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders and allows us to continue to focus on the future,” Bank of America CEO Brian Moynihan said in a statement.
Bank of America must provide the consumer relief by Aug. 31, 2018, or pay damages to various organizations that will use the funds for foreclosure prevention, neighborhood stabilization and housing counseling, among other things.
The consumer relief will take various forms, including reducing loan modifications for homeowners who owe more than their properties are worth and mortgages for borrowers who have struggled to get a loan. Also, the bank has agreed to put more than $490 million in a fund to cover some of the tax liability that would be incurred by consumers if Congress doesn’t extend tax relief under the Mortgage Forgiveness Debt Relief Act of 2007.
An independent monitor will oversee the bank’s compliance with consumer relief requirements.
The bank said Thursday it expects the settlement to lower its third-quarter pre-tax earnings by $5.3 billion, or about 43 cents a share after taxes.
The pact also includes a settlement with the U.S. Securities and Exchange Commission in which Bank of America admitted it failed to inform investors during the financial crisis about “known uncertainties to future income from its exposure to repurchase claims on mortgage loans.”
The bank also settled securities fraud charges filed last year related to a mortgage-backed securities offering. In the SEC cases, the bank is paying $245 million as part of the broader settlement.
As part of the agreement, the SEC filed new charges Thursday against the bank in a settled administrative proceeding. The charges related to mortgage loan repurchase claims tied to more than $2 trillion in mortgage sales from 2004 through the first half of 2008 by the bank and companies it acquired.
By reaching the deal, Bank of America becomes the latest major U.S. lender to settle U.S. government investigations into alleged mortgage misconduct blamed for fueling the worst U.S. economic crisis since the Great Depression.
At $16.65 billion, the deal eclipses a $13 billion settlement, announced in November, between JPMorgan Chase & Co. and the Justice Department to resolve similar probes.
The settlement boosts Bank of America’s already-high tally for legal costs stemming from the crisis. The second-largest U.S. bank by assets has spent more than $60 billion over financial crisis-era legal issues - more than any other lender has paid to resolve similar matters.
The majority of those costs has stemmed largely from the bank’s purchase of investment bank Merrill Lynch in 2009 and its purchase of mortgage lender Countrywide in 2008.