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 A settlement would likely cap more than four years of work by Brian
Moynihan, the bank's chief executive, to rid Bank of America of
nearly all of the massive mortgage liabilities it took on through
the acquisitions of Countrywide Financial Corp and Merrill Lynch &
Co by his predecessor, Kenneth Lewis.
The bank has agreed to pay about $9 billion in cash and the rest in
assistance to struggling homeowners, said the person, who was not
authorized to speak publicly about the matter.
Lawrence Grayson, a Bank of America spokesman, declined to comment.
A $16.5 billion payout would be the largest in a series of soaring
penalties against banks for a range of misconduct, including
violating U.S. sanctions and inappropriately marketing mortgages.
JPMorgan Chase & Co paid $13 billion last year to resolve similar
civil fraud claims that it misled mortgage bond investors, and
Citigroup Inc <C.N> agreed to pay $7 billion over similar charges
last month.
Those two settlements and the one expected with Bank of America are
the product of a task force President Barack Obama directed the
Justice Department to convene in 2012 to examine fraud in mortgage
securities that helped fuel the financial collapse. The announcement
came after his administration faced criticism that it was not
sufficiently holding accountable those who contributed to the
crisis.
The Wall Street Journal first reported on Wednesday the progress in
settlement talks.
Negotiations between Bank of America and the government continued on
Wednesday, with a meeting between Bank of America general counsel
Gary Lynch and the No. 3 official at the Justice Department, Tony
West, two people familiar with the talks said. An announcement of a
final deal is not expected this week.
The agreement in principal was reached after a phone call last week
between Moynihan and Attorney General Eric Holder, sources said.
Bank of America had earlier sought a meeting between Moynihan and
Holder, but the Justice Department had declined the request last
month.
Last week the bank raised its earlier offer of $14 billion, to
resolve three Justice Department investigations as well as claims
from the Federal Deposit Insurance Corp and several states, sources
said.
The phone call between Moynihan and Holder came after U.S. District
Judge Jed Rakoff in Manhattan on Wednesday ordered Bank of America
to pay a $1.27 billion penalty for what he called a "brazen fraud"
over shoddy mortgages sold by Countrywide, which the bank bought for
$2.5 billion in July 2008.
While a jury last October found the second-largest U.S. bank liable
for the conduct, it was not clear how large a penalty the bank might
face.
Bank of America had argued it should have owed nothing because
Countrywide lost money on the loans.
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The separate Justice Department negotiations were driven by
allegations about securities sold by Merrill, which the bank also
agreed to acquire in 2008, people familiar with the matter have
said.
Analysts have said the purchases of Countrywide and Merrill have
already cost Bank of America well over $50 billion through
litigation, loan buybacks and other mortgage relief.
According to a regulatory filing, about $245 billion, or just over
one-fourth, of the $965 billion of mortgage-backed securities and
loans issued between 2004 and 2008, and sold to private investors -
and now attributed to Bank of America - are either in default or
severely delinquent.
Countrywide accounted for $187 billion, or 76 percent, of the
problematic securities, while Bank of America accounted for just $10
billion, or 4 percent. The rest came from Merrill and the former
First Franklin Financial Corp, which Merrill bought in 2006.
The consumer help portion of the settlement is expected to mirror
past deals, which included cutting loan balances for underwater
borrowers, refinancing mortgages, and other types of help to
struggling homeowners.
Bank of America shares closed Wednesday up 20 cents at $15.20 on the
New York Stock Exchange. They were little changed after market
hours.
The news of the deal comes just after Bank of America said the
Federal Reserve approved its plan to raise its quarterly dividend
for the first time since the financial crisis.
Illinois Attorney General Lisa Madigan is involved in the
negotiations, according to her spokeswoman. New York Attorney
General Eric Schneiderman has also been involved in the talks, a
separate person familiar with his involvement said. A spokesman for
Schneiderman declined comment.
(Reporting by Aruna Viswanatha in Washington and Karen Freifeld and
Jonathan Stempel in New York, additional reporting by Avik Das in
Bangalore; Editing by Richard Chang and Ken Wills)
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