WASHINGTON — Bank of America is nearing a $16 billion to $17 billion settlement to resolve an investigation into its role in the sale of mortgage-backed securities before the 2008 financial crisis, a person directly familiar with the matter said Wednesday.
The deal with the bank, which must still be finalized, would be the largest Justice Department settlement by far arising from the economic meltdown, in which millions of Americans lost their homes to foreclosure. It would follow earlier multibillion-dollar agreements reached in the last year with Citigroup and JPMorgan Chase & Co.
The person, who spoke on condition of anonymity because the deal had not yet been announced, cautioned that some details still needed to be worked out, and that it was possible that the agreement could fall apart. But the person said the two sides reached an agreement in principle following a conversation last week between Attorney General Eric Holder and Brian Moynihan, Bank of America CEO.
The person said the tentative deal calls for the bank to pay roughly $9 billion in cash, and for the remaining sum to go toward consumer relief. A bank spokesman declined to comment. The Wall Street Journal first reported details of the settlement Wednesday.
The deal would be the latest arising from the sale of toxic mortgage securities leading up to the recession. The Justice Department last year reached a $13 billion settlement with JPMorgan, and in July, it announced a $7 billion settlement with Citigroup.
Each of these deals is designed to offer some relief to homeowners, whose mortgages were bundled into securities by the banks in question and then sold to investors. When the housing market collapsed, the poor quality of the loans led to huge losses for investors and a slew of foreclosures, kicking off the recession that began in late 2007.
Yet the cash totals from some of America’s largest banks are not nearly enough to reverse the damages caused by the bursting of the housing bubble and the ensuing recession. Millions of Americans lost their homes in foreclosures and found themselves jobless in the worst downturn since the 1930s. Even as the unemployment rate has clawed back to 6.2 percent from a peak of 10 percent, many people are no better off, as average household incomes after inflation are still lower than what they were seven years ago.
Consumer groups have criticized past settlements for being soft on the banks and for an apparent lack of transparency.
The settlements stem from the sale of toxic securities made up of subprime mortgages. Banks played down the risks of subprime mortgages when packaging and selling the securities to mutual funds, investment trusts and pensions, as well as other banks and investors.United States government - Eric Holder - Bank of America Corporation - JPMorgan Chase & Co - Fannie Mae - Brian Moynihan