Calling it the largest settlement with a single entity in American history, the Department of Justice last week reached a record-breaking $16.6 billion settlement with Bank of America to resolve claims related to its packaging, origination, marketing, sale, structuring, and issuance of residential mortgage-backed securities and collateralized debt obligations.
But where is all that money going?
Here is the breakdown, as provided by the Justice Department:
$9.65 billion will go toward settling pending and potential legal claims in connection with residential mortgage-backed securities, collateralized debt obligations, and other types of fraud, of which $5 billion will be paid as a civil penalty under the Financial Institutions Reform, Recovery and Enforcement Act—the largest FIRREA penalty ever;
$300 million will be paid to resolve claims by the state of New York;
$300 million will be paid to resolve claims by the state of California;
$200 million will be paid to resolve claims by the state of Illinois;
$75 million will be paid to resolve claims by the state of Maryland;
$45 million will be paid to resolve claims by the state of Delaware; and
$23 million will be paid to resolve claims by the Commonwealth of Kentucky.
In addition, BofA will pay approximately $1.8 billion to settle federal fraud claims related to the bank’s origination and sale of mortgages; $1.03 billion will be paid to resolve federal and state securities claims by the Federal Deposit Insurance Corporation; and $135.8 million will be paid to resolve claims by the Securities and Exchange Commission.
Bank of America will provide the remaining $7 billion in the form of relief to aid hundreds of thousands of consumers harmed by the financial crisis precipitated by the unlawful conduct of Bank of America, Merrill Lynch, and Countrywide, according to the Justice Department.
That relief will take various forms, including principal reduction loan modifications that result in numerous homeowners no longer being underwater on their mortgages and finally having substantial equity in their homes.
It also will include new loans to credit worthy borrowers struggling to get a loan, donations to assist communities in recovering from the financial crisis, and financing for affordable rental housing. Additionally, BofA will place more than $490 million in a tax relief fund to be used to help defray some of the tax liability that will be incurred by consumers receiving certain types of relief if Congress fails to extend the tax relief coverage of the Mortgage Forgiveness Debt Relief Act.
An independent monitor will be appointed to determine whether BofA satisfies its obligations under the settlement.
According to the Justice Department, if the bank fails to live up to its agreement by Aug. 31, 2018, it must pay liquidated damages in the amount of the shortfall to organizations that will use the funds for state-based Interest on Lawyers’ Trust Account (IOLTA) organizations and NeighborWorks America, a non-profit organization that provides affordable housing.
These organizations will use the funds for foreclosure prevention and community redevelopment, legal assistance, housing counseling, and neighborhood stabilization, the Justice Department stated.