Bank of America agrees to massive legal settlement
The deal seeks to clean up the mess from Countrywide Financial, which the bank bought in 2008. Will victims of Countrywide's predatory lending practices see justice?
Under terms of the deal, which seeks to clean up the mess created by Countrywide, B of A will make a cash payment of $3.6 billion to Fannie Mae and repurchase $6.75 billion in residential mortgages sold between 2000 and 2008 that are worth less than their original price. The company expects the settlement to shave $2.5 billion from fourth-quarter earnings. Bank of America also plans to sell the servicing rights to mortgages with a cumulative value of about $306 billion.
Countrywide Financial, which has generated more than $30 billion in losses, was the poster child for the reckless lending practices that helped create one of the biggest real estate bubbles in recent memory. The company's longtime CEO, Angelo Mozillo, tried to curry favor on Capitol Hill through a "Friends of Angelo" loan program that offered members of Congress mortgages under more advantageous terms than they could have gotten otherwise.
A 2008 probe by the Center for Responsible Lending detailed a litany of abuses by Countrywide, including steering customers with good credit scores into high-cost subprime mortgages. The company's practices were especially tough on minorities and the elderly, and sadly were not isolated.
Ten banks, including B of A, have reached an $8.5 billion settlement with Office of the Comptroller of the Currency and Federal Reserve, according to media reports. As New York Times columnist Gretchen Morgenson noted on Sunday, the settlement, which was rumored to be in the works, "means more of the same: no accountability for financial institutions and little help for borrowers."
As for Mozillo, he is enjoying his retirement. He agreed to pay $67.5 million in 2010 to settle fraud charges brought by the SEC. Between 2000 and 2008, Mozillo earned $526.8 million in compensation, according to the Wall Street Journal. He isn't facing criminal charges. Last May, the former CEO sold his 6,238 square foot home in California for $2.9 million, according to the Los Angeles Times.
--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.
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