The US Department of Justice settled various federal and state civil claims against Bank of America related to its, and certain of its current and former subsidiaries’, handling of mortgage instruments and loans from 2004 to 2013.
Pursuant to the terms of the settlement, BofA agreed to pay up to US $16.65 billion in total: US $9.65 billion in fines, and the remainder in the form of direct relief to homeowners (for example, through reductions in the principal of outstanding mortgage loans and new loans) and the establishment of a tax relief fund to help certain homeowners with their potential tax liability resulting from their mortgage loan relief.
The settled matters included charges related to alleged conduct by Countrywide Financial Corporation and Merrill Lynch, companies acquired by BofA during the 2007—2009 financial crisis. The federal and state claims raised issues with BofA’s packaging, structuring and sale of residential mortgage-backed securities and collateralized debt obligations without disclosing negative facts about the quality of the underlying loans, and with the bank’s origination of risky mortgage loans that included making misrepresentations about their quality to Fannie Mae, Freddie Mac and the Federal Housing Administration. These agencies insured or subsequently acquired the loans after they were originated.
As part of its settlement, BofA agreed to a statement of facts in which the bank acknowledged many of the practices alleged to have been wrongful in the various federal and state claims. BofA expressly admitted its disclosure failures as part of its settlement with the Securities and Exchange Commission—one of the federal agencies that had sued BofA.
The settlement does not cover potential criminal liability or the liability of any individual.
According to the statement of facts, BofA’s acquisition of Merrill Lynch and Countrywide occurred after the events that gave rise to the charges related to those companies’ conduct.
Separately, in a similar matter in part, Goldman Sachs & Co. agreed to a settlement with the Federal Housing Finance Agency for alleged violations of federal and state securities laws in connection with Fannie Mae’s and Freddie Mac’s purchase of residential mortgage-backed securities sold by the company between 2005 and 2007. As part of this settlement, Goldman Sachs, on its own behalf and for related entities and persons, agreed to buy back the disputed securities for US $3.15 billion. Based on the current market value of these securities, FHFA estimates the value of this settlement to be US $1.2 billion. Goldman Sachs did not admit any liability or wrongdoing as part of its settlement.
Fannie Mae and Freddie Mac are government-sponsored enterprises whose purpose is to help expand the ability of financial institutions to grant mortgage loans by participating in the transformation of such loans into mortgage-backed securities that are sold in global capital markets. (For information on new SEC rules related to asset-backed securities, click here see the article elsewhere in this edition of Bridging the Weekentitled “SEC Adopts Rules Aimed at Increasing Transparency Related to Asset-Backed Securities.”