Bank Of America Settles With Feds And States For Record Amount

In the latest fallout from misdeeds leading up to the financial crisis, Bank of America has agreed to a record $16.65 billion deal with federal and state governments. The deal helps the bank avoid prosecution for the fraudulent sale of toxic mortgage-backed securities to investors.

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From NPR News this is ALL THINGS CONSIDERED. I'm Robert Siegel.

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And I'm Audie Cornish. Bank of America has agreed to pay a record penalty, 16.6 billion dollars, to settle charges of lying to investors in mortgage assets. This goes back to the heady years of the subprime mortgage boom. The Justice Department says, Bank of America sold billions of dollars in faulty mortgage assets and they knew they were doing it. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: The charges involved so-called residential mortgage-backed securities or MRBS that were sold in huge amounts to investors all over the world during the subprime boom. U.S. attorney general Eric Holder says, much of the debt was actually packaged and sold by Merrill Lynch and Countrywide Financial which were later acquired by Bank of America. So the bank is legally liable for what took place.

ERIC HOLDER: It, Merrill Lynch and Countrywide, sold billions of dollars of MRBS backed by toxic loans whose quality and level of risk they knowingly misrepresented to investors and to the United States government.

ZARROLI: Merrill Lynch for instance regularly issued securities based on loans that didn't comply with underwriting guidelines. The borrowers had recently declared bankruptcy or lacked documentation of income or assets. Merrill's due diligence manager did warn about the quality of some of the loans, but was overruled by traders. Something similar took place at Countrywide when underwriters rejected a mortgage application it was immediately kicked upstairs to a separate office where it could be approved anyway using something called shadow guidelines. The settlement announced today includes about $7 billion in mortgage relief for individuals and communities hurt by such conduct. Tony West is Associate U.S. Attorney General.

TONY WEST: It'll offer hope to thousands of Americans, hundreds of thousands of Americans, who are still laboring under upside-down mortgages or struggling in neighborhoods that are beset by vacant properties or fighting to avoid foreclosure for themselves and their families.

ZARROLI: The amount of money that Bank of America has agreed to play dwarfs earlier settlements paid by J.P. Morgan Chase and Citigroup. Bart Naylor is with Public Citizen's Congress Watch Division.

BRIAN NAYLOR, BYLINE: I think that the settlements are growing more robust, more muscular which is welcomed.

ZARROLI: But Naylor says, the government hasn't really begun to quantify how much money was lost by investors because of the banks conduct which makes it hard to say whether the fine is adequate. Naylor voices another criticism that's been leveled frequently against regulators. He says, they've punished the bank for fraud, but they haven't pursued any of the individuals responsible.

NAYLOR: Who are those people? Why are those people not being held to account?

ZARROLI: U.S. officials say, they're not done with their investigation and may file criminal charges against individuals later. In the meantime they say, the $16 billion fine is historic. It's considerably more than the $11 and a half billion in profit the bank earned last year. For its part, Bank of America issued a statement saying the settlement was in the best interest of the bank and its shareholders and allows it to continue to focus on the future. Jim Zarroli, NPR News, New York.

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