August 08, 2014 08:12
U.S. news outlets say Bank of America has agreed to pay over $16 billion to settle the federal government's investigation into its sale of mortgage-backed securities, the investment vehicle largely blamed for the 2008 financial crisis.
The reports say a tentative agreement was reached last week during a phone call between Bank of America chairman Brian Moynihan and U.S. Attorney General Eric Holder. Details of the agreement are still being worked out, but sources say Bank of America will pay $9 billion in cash, with the remaining money being used to help struggling homeowners.
Federal prosecutors have been investigating Bank of America over its acquisitions of Countrywide Bank and investment firm Merrill Lynch, which together held about $965 billion in mortgage-backed securities. The securities included so-called subprime home loans taken out by homeowners who were unable to maintain the payments.
The poor quality of the loans led to huge losses for investors who bought mortgage-backed securities, as well as a wave of foreclosures on delinquent homeowners, which led to the worst economic downturn since the Great Depression of the 1930s.
The settlement by Bank of America is the largest reached with the federal government in connection with the toxic securities. The Justice Department has already reached multi-billion dollar settlements with two other major U.S. banks, JPMorgan Chase and Citigroup.
But consumer advocacy groups have criticized the government for failing to bring criminal charges against these financial firms, or their executives, who sold the faulty mortgages to unsuspecting consumers.
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