Bank of America and the U.S. Department of Justice (DoJ) announced Thursday that they have reached an agreement where the bank will pay $16.65 billion in penalties and consumer relief for selling shoddy mortgages that led to the financial downturn in 2007.
The bank agreed to pay $9.65 billion in cash and $7 billion in consumer relief that will include mortgage payment forgiveness and community development.
"This constitutes the largest civil settlement with a single entity in history, addressing conduct uncovered in more than a dozen cases and investigations," Bloomberg quoted Attorney General Eric Holder.
"The size and scope of this multibillion-dollar agreement go far beyond the 'cost of doing business.'"
"We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future," Brian Moynihan, CEO of BofA, said in a statement.
Bank of America and the DoJ were at loggerheads about the settlement amount for quite some time. 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 reported.
A few weeks ago, it was reported that the bank and the U.S. had managed to reach a consensus on the amount, but other elements of the settlement were still being discussed. Thursday's announcement finalized the deal and resolved the bank's faulty mortgage case.
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 and many analysts argued that the unit shouldn't be held responsible.
Experts believe the deal is better than any other settlement the DoJ struck during the investigation.
"It is better than previous settlements because it offers more principal reductions, more money for blighted areas and more money for new mortgages to low- and moderate-income home buyers," Bruce Marks, founder of the Neighborhood Assistance Corporation of America, told The New York Times.
However, BofA wasn't the only financial institution under government scrutiny. JP Morgan Chase has already settled with the U.S. authorities for $13 billion and more recently in July, 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.
