Bank of America nearing landmark probe settlement

Justice’s deal with bank over mortgages could reach $17B

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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


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