Bank of America and the U.S. Justice department (DoJ) have reportedly struck an agreement where the financial institution will pay a little under $17 billion to settle allegations of selling faulty mortgage loans that eventually led to the housing market crash in 2007.
According to the New York Times, officials of the bank and the justice department managed to arrive at a consensus, July 31, in a late night telephone conversation after a bank official offered to pay $9 billion in penalties and $7 billion in consumer relief.
While the exact announcement is yet to be revealed, it will be the highest penalty collected by the DoJ through its investigations into the shoddy mortgage cases.
Bank of America and the DoJ were at loggerheads about the settlement amount for quite sometime. The U.S. wanted the bank to pay about $17 billion, but the bank was pushing to pay just about $13 billion - of which at least $5 billion would go towards consumer relief.
However, when the DoJ threatened to file a civil lawsuit against Meryll Lynch, a unit of the bank, last week, the bank tentatively agreed to cough up the demanded amount, USA Today reports.
A Bank of America official told USA Today that while the amount has been decided upon, there are several other issues that are yet to be settled. Therefore, an official announcement could take weeks.
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 the bank 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.
"The DOJ can be counted on to brag that the settlement dollar amount with Bank of America sets yet another record and claim, again, that this shows DOJ is tough on Wall Street," Dennis Kelleher, president and CEO of Better Markets - a financial watchdog group - was cited by USA Today.
"But, unlike other recent settlements, will DOJ provide the public with the key information on investor losses, Bank of America profits, the names of involved executives, specific laws broken and the actual systemic illegal schemes and activities?" Kelleher added.
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.
