Bank of America Settles For Billions Over Bad Loans
Bank of America has agreed to pay Fannie Mae $10 billion to settle claims that the bank’s Countrywide Financial business issued home loans that contributed to the housing crash and economic recession in 2008.
“Both Fannie and Freddie [Mac], which have suffered billions of dollars in losses in recent years, have argued that Countrywide misrepresented the quality of home loans that it sold to the two entities at the height of the mortgage bubble,” The New York Times reports. “Bank of America assumed those troubles when it bought Countrywide in 2008.” The bank will pay $3.6 billion to Fannie Mae and buy back $6.75 billion in mortgages.
Bank of America is trying to get out of the mortgage business all together, but as the Times reports, they’ve run into problems with other outstanding lawsuits, including one from the Justice Department that could take $1 billion to settle. Last week, The Wall Street Journal reported that that settlement, which is meant “to compensate minority borrowers for alleged discrimination,” has been delayed with homeowners still being contacted and the possibility that checks won’t go out for another two years.
“The department said Countrywide charged black and Hispanic borrowers higher mortgage-lending fees or steered them into costly subprime loans even though their credit histories qualified them for a mortgage with more favorable terms,” the WSJ says. In its response, BofA tries to distance itself from Countrywide’s pre-acquisition business practices. Recipients will get between $200 and more than $15,000.
Bank of America is also participating in an $8.5 billion settlement (along with other financial institutions like JPMorgan Chase, Wells Fargo, and Citibank) to settle bad loan claims. Only $3.3 billion will go directly to borrowers (3.8 million customers total). The rest will be used for loan modifications and other adjustments, according to Forbes.