Fannie Mae-No Politics (FNMA)

[Bruce A Thompson]

Bank of America Near $16 Billion to $17 Billion Settlement

By ANDREW GROSSMAN, CHRISTINA REXRODE and DAN FITZPATRICK
Updated Aug. 6, 2014 4:16 p.m. ET

Bank of America Corp. and the Justice Department are close to a deal in which the bank will pay between $16 billion and $17 billion to resolve allegations of mortgage-related misconduct in the run-up to the financial crisis, according to people familiar with the matter.

The bank has agreed to pay roughly $9 billion in cash to the Justice Department, states and other government entities, these people said, with additional money aimed at consumer relief, such as reducing mortgage balances for struggling homeowners.

If finalized, the agreement would set a record for fines and damages in a civil settlement between the U.S. government and a company. It would eclipse the $13 billion pact struck between the Justice Department and J.P. Morgan Chase JPM +0.30% & Co. in November over similar issues. Citigroup Inc. C +0.52% recently agreed to pay $7 billion to settle similar claims that it sold shoddy mortgage-backed securities ahead of the financial crisis.

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Bank of America agreed to the outlines of a deal after a phone call Thursday between Chief Executive Brian Moynihan and Attorney General Eric Holder, people familiar with the matter said. For weeks, the bank refused to offer more than $13 billion, including cash and consumer relief, while the Justice Department was seeking $17 billion.

Mr. Holder told Mr. Moynihan that if the bank didn't bring its offer closer to the government's demand, Justice Department lawyers could file a lawsuit the next day that had been prepared by New Jersey U.S. Attorney Paul Fishman, these people said. That lawsuit dealt primarily with precrisis conduct by Merrill Lynch & Co., which Bank of America agreed to acquire while the housing meltdown was well under way in 2008.

The phone call between Mr. Moynihan and Mr. Holder came the day after a New York judge ordered the bank to pay $1.27 billion over an old Countrywide Financial Corp. mortgage program called the Hustle, which rewarded employees based on the number of mortgages they could churn out. Bank of America, which acquired Countrywide in 2008, had argued it should pay far less—if anything—given the Hustle ended before Bank of America's purchase. Judge Jed Rakoff's ruling may have reinforced for the bank the difficulty of litigating with the government—and that the government is adamant about holding Bank of America accountable for the misdeeds of Countrywide and Merrill Lynch.

Large banks are already paying more than $100 billion for cases related to the 2008 credit crisis.

The majority of mortgage-backed securities now credited to Bank of America were issued by Countrywide. Bank of America, Countrywide and Merrill Lynch together issued $965 billion of mortgage-backed securities to private investors from 2004 to 2008—far more than any big-bank competitors—but nearly three-quarters came from Countrywide. Of the $245 billion of securities that have since defaulted or become severely delinquent, Bank of America itself issued just 4%.

The two sides are continuing to hash out details and the deal could still fall apart, one person familiar with the matter said. An announcement isn't expected this week. On Wednesday, Bank of America General Counsel Gary Lynch met in Washington with Tony West, the Justice Department official responsible for negotiating with banks over mortgage securities, in hopes of ironing out some of the details.

http://online.wsj.com/articles/bank-of-america-near-16-billion-to-17-billion-settlement-1407355290