Bank of America has reached a $17 billion agreement with federal and state regulators to settle investigations over faulty mortgage-backed securities sold before the 2008 financial crisis.
About $7 billion in the settlement will go to consumers "harmed by the financial crisis precipitated by the unlawful conduct of Bank of America, Merrill Lynch and Countrywide," according to the Department of Justice.
The relief will be delivered as principal reductions and loan modifications for homeowners who are underwater on their mortgages. It will also include new loans to borrowers struggling to get a loan and financing for affordable rental housing.
Who gets what and when?
Mortgages serviced by Bank of America but owned by Fannie Mae and Freddie Mac will not be eligible for assistance. Only loans held in Bank of America's portfolio will be considered.
The bank plans to determine eligibility and identify the customers in the coming weeks, says Dan Frahm, a spokesman for Bank of America.
"We will begin to contact customers proactively in the fourth quarter of the year," he says.
The consumer portion of the settlement will be subject to oversight by an independent monitor. Bank of America has until August 2018 to complete this part of the settlement.
Frahm says additional information about eligibility is not available now, but consumers who have questions about the settlement and their loans can call Bank of America at (877) 488-7814.
What's in it for regulators and investors?
The cash portion of the settlement, about $9.65 billion, will be paid to settle federal and state civil claims related to residential mortgage-backed securities.
“Bank of America failed to make accurate and complete disclosure to investors and its illegal conduct kept investors in the dark,” said Rhea Kemble Dignam, regional director of the SEC’s Atlanta office. “Requiring an admission of wrongdoing as part of Bank of America’s agreement to resolve the SEC charges filed today provides an additional level of accountability for its violation of the federal securities laws.”
The Department of Justice claims this is the largest settlement the department has reached with a single company.
But is this settlement enough?
Not according to Bartlett Naylor, financial policy advocate at Public Citizen’s Congress Watch division.
"Bank of America managers are at the center of the mortgage fraud, but the Justice Department penalty will essentially fall on shareholders who certainly were not conspirators," Nayolor says. "The corrupt culture of Wall Street won’t be reformed until perpetrators are held accountable.”