Bank of America Could Settle Mortgage Probes for $12B

According to The Wall Street Journal, Bank of America Corp. (BAC) is in negotiations to settle the mortgage probes by the U.S. Department of Justice and several states for at least $12 billion. The bank has been under investigation over the sale, underwriting and securitization of residential mortgage bonds from prior to the 2008 financial crisis.

At least $5 billion would go to consumer relief as help for homeowners to lower their principals, as well as pay blight removal in certain neighborhoods. Already, BofA has agreed to pay $6 billion to settle with the Federal House Finance Agency related to residential mortgage backed securities that were purchased by Freddie Mac (FMCC) and Fannie Mae (FNMA) between 2005 and 2007. That case also involved allegations made against the bank’s Merrill Lynch and Countrywide Financial Group.

However, government negotiators are pressing BofA to pay billions of dollars more than $12B in this case. If a deal isn’t struck, the US Department of Justice may opt to file a civil lawsuit against the bank.

According to some analysts, Bank of America and its subsidiaries put out about $965 billion in private-label MBSs between 2004 and 2008. A lot of the mortgage-backed securities were made by Countrywide, which BofA acquired in 2008.

Last month, Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Authority, said that there are still over a dozen mortgage bond investigations ongoing that will ultimately cost financial companies billions of dollars. He also said that contrary to media complaints that executives linked to the mortgage crisis have not been pursued, hundreds have been indicted and convicted for mortgage fraud.

Recently, ex-Goldman Sachs (GS) trader Fabrice Tourre said he wouldn’t file an appeal in the SEC case against him that he lost. The Commission accused Tourre of involvement in a mortgage-backed securities fraud scam that collapsed during the financial crisis. The fraud centered around the Abacus, 2007-AC1, a synthetic collateralized debt obligation made up of bundled RMBSs.

A district court judge entered a final judgment against Tourre earlier this year. Tourre has been ordered to pay $650,000. He was told to disgorge $175,463 and pay over $31,000 in prejudgment interest.

A settlement with Bank of America could potentially eclipse the $13 billion reached between JPMorgan Chase (JPM) and a number of government authorities late last year. That deal included $4 billion in assistance to beleaguered homeowners and $9 billion in payments. The settlement also took care of government civil claims over RMBS sales made by the firm and Washington Mutual, which it acquired, prior to 2009. JPMorgan also agreed to pay Freddie Mac and Fannie Mae $5.1 million over mortgage-backed securities losses.

BofA in Talks to Pay At Least $12 Billion to Settle Probes, The Wall Street Journal, June 5, 2014

Billions More in Mortgage Penalties Coming: Federal Regulator, The Street, May 21, 2014

Former Goldman Trader Tourre Says He Will Not Appeal, The NY Times, May 27, 2014

More Blog Posts:
Bank of America, Its Ex-CEO To Pay $25M to Settle Securities Case with NY Over Merrill Lynch Deal, Stockbroker Fraud Blog, March 31, 2014

$500M MBS Settlement Reached Between Countrywide and Investors, Stockbroker Fraud Blog, May 10, 2014

Bank of America Ordered to Hold Off Giving Back Money To Shareholders After Incorrectly Reporting $4B in Capital, Institutional Investor Securities Blog, May 5, 2014