August 27, 2014 View entire issue of ANO         Close 

Bank of America Pays Record Fine for Faulty RMBS
Bank of America will pay a record $16.65 billion penalty in the largest-ever civil settlement between a single entity and the federal government, USA Today reported Aug. 21.

The historic settlement will resolve allegations that the bank sold faulty residential mortgage-backed securities that helped fuel the financial crisis. The settlement includes a $9.65 billion cash payment ($5.02 billion in civil penalty to the U.S. Department of Justice and $4.63 billion in compensatory remediation payments) and $7 billion in consumer relief, including mortgage payment reductions for borrowers and funding of neighborhood stabilization projects. 

The bank also agreed to admit wrongdoing in a case involving securities fraud with the U.S. Securities and Exchange Commission and will pay $245 million to resolve those charges, USA Today reported.

Most of the allegations against the bank involved the activities of Countrywide Financial, which Bank of America purchased in 2008, and of Merrill Lynch, the brokerage the bank acquired during the financial crisis.

“Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch, and Countrywide sold billions of dollars of RMBS backed by toxic loans whose quality and level of risk they knowingly misrepresented to investors and the U.S. government,” Attorney General Eric Holder told USA Today. “These 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. "

Bank of America CEO Brian Moynihan said in a news conference following the settlement announcement that he felt the resolution was in the best interest of the bank because it ultimately reduces the firm’s overall liability. 

Bank of America’s historic settlement follows another big one involving JPMorgan Chase in which the latter agreed to pay $13 billion last November for allegedly selling toxic mortgage securities.

Bank of America has spent more than any other U.S. bank to settle charges related to alleged wrongdoing in the financial crisis — to date, more than $60 billion in penalties. All told, the country’s six largest banks have paid more than $107 billion in penalties since the financial crisis, according to data from SNL Financial, USA Today reported. 

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