The Bank of America and the U.S. Justice Department (DoJ) are at loggerheads regarding how much the financial institution should pay in penalties after it was found guilty of selling faulty mortgages to investors, which eventually led to the financial crisis in 2008.
The DoJ and Bank of America have been negotiating the settlement amount for quite a while now. The U.S. wanted the bank to pay about $17 billion in penalties but the bank is resisting the demands and has agreed to pay just about $13 billion of which at least $5 billion would go towards consumer relief.
Officials of the bank and the Justice department met Tuesday but failed to reach an agreement over the penalty amount. And now, the department is considering filing a civil lawsuit against the financial institution, according to Bloomberg.
"If an institution is unwilling to admit its wrongful conduct in a statement of facts; or balks at paying a substantial penalty that reflects that conduct; or refuses to do right by those affected, then we will not shrink from litigation," Tony West, Attorney General with the Justice department told the news agency without naming any company.
Just after news of Bank of America's failure to reach an agreement with the DoJ surfaced, the bank announced that its second quarter earnings had taken a hit due to the litigation costs. It had just settled another $650 million faulty-mortgage lawsuit with America International Group Inc., The Wall Street Journal reports.
Earlier this year, Bank of America paid $9.5 billion to the Federal Housing Finance Agency (FHFA) to settle a lawsuit with the Fannie Mae, Freddie Mac regulator. It has settled about 95 percent of its residential mortgage litigations already.
The Bank of America and its Merrill Lynch unit packed and sold $965 million worth of faulty securities to investors. Most of the faulty securities came from the Merrill Lynch unit before Bank of America acquired it in 2008.
Many analysts have argued if the bank should be held responsible because the damaged mortgages came before the "government encouraged" takeover, reports The Washington Post.
But the Bank of America is not the only institution under government scrutiny. JP Morgan Chase has already settled with the U.S. authorities for a record $13 billion and more recently, Citigroup settled with the DoJ paying $7 billion to resolve the shoddy mortgages case.
Goldman Sachs, Wells Fargo, Morgan Stanley, UBS, Royal Bank of Scotland and Deutsche Bank are also on the DoJ's investigation radar.
