Bank of America’s $16.65 Billion Settlement

by Bilzin Sumberg
Contact

In what is being reported as the largest settlement ever between the U.S. and a single business entity, Attorney General Eric Holder and Associate Attorney General Tony West announced Thursday that Bank of America Corp. (“BofA”) has agreed to pay $16.65 billion to settle accusations by the Department of Justice that it, as well as Countrywide Financial Corp. (“Countrywide”) and Merrill Lynch & Co. (“Merrill”), sold residential mortgage securities backed by “toxic” loans in the run up to the financial crisis in 2008. The payment includes almost $10 billion to be paid to settle federal and state civil claims and penalties, and $7 billion to be paid in the form of relief to aid hundreds of thousands of consumers harmed by the financial crisis precipitated by the unlawful conduct of lenders like BofA, Merrill Lynch and Countrywide. This settlement comes on the heels of deals reached by the government with JPMorgan Chase in the sum of $13 billion and Citigroup in the sum of $7 billion.

At a news conference, Attorney General Eric Holder said BofA, Countrywide, and Merrill Lynch had “engaged in pervasive schemes to defraud financial institutions and other investors” by misrepresenting the soundness of residential mortgage-backed securities (“RMBS”). He stated that “[t]hese [RMBS] loans contained material underwriting defects; they were secured by properties with inflated appraisals; they failed to comply with federal, state, and local laws; and they were insufficiently collateralized. Yet these financial institutions knowingly, routinely, falsely and fraudulently marked and sold these loans as sound and reliable investments.”

In a statement of facts included in the settlement, BofA has acknowledged that it sold billions of dollars of RMBS without disclosing to investors key facts about the quality of the RMBS loans. It has also acknowleged that it originated risky mortgage loans and made certain misrepresentations about the quality of those loans to Fannie Mae, Freddie Mac and the Federal Housing Administration.

The settlement doesn’t release the bank from criminal charges and the Department of Justice has reserved the right to file both criminal and civil charges against individuals. However, the settlement fails to identify a single executive responsible for the fraud. This has ignited a call for more transparency in these deals:

“This settlement thickens the list of private deals between government litigators and the largest financial institutions. As Public Citizen’s recent report demonstrates, the Department of Justice has largely shied away from aggressively prosecuting Wall Street banks and opted instead for fines and settlements. Fair justice calls for transparent use of the courts where the public can understand the evidence and the adequacy of remedies. Bank of America managers are at the center of the mortgage fraud, but the Justice Department penalty will essentially fall on shareholders who certainly were not conspirators. The corrupt culture of Wall Street won’t be reformed until perpetrators are held accountable,” said Bartlett Naylor, financial policy advocate, Public Citizen’s Congress Watch division.

So what does this settlement mean for former correspondent lenders faced with mortgage loan repurchase and/or indemnification demands from BofA? For one, it should be a further reason to give pause for those facing buyback claims from the bank and focus on the banks’ accountability for its share of the mistakes that contributed to the mortgage meltdown. We continue to wonder how BofA can claim with any credibility that it was duped by its correspondent lenders in purchasing “defective” loans. BofA’s acknowledgement in the settlement that it understood the risks inherent in the loans that it was purchasing and then securitizing, contradicts BofA’s claims asserted against its former correspondent lenders—that it would never have purchased a loan had it believed at the time that the loan was somehow defective.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bilzin Sumberg | Attorney Advertising

Written by:

Bilzin Sumberg
Contact
more
less

Bilzin Sumberg on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.