Coverage: Bank of America to pay $17 billion for mortgages

Bank of America is trying to put its mortgage woes behind it, agreeing to by $17 billion to end a government investigation.

The Wall Street Journal story by Christina Rexrode and Devlin Barrett had these details:

Bank of America Corp. is set to pay a record settlement of nearly $17 billion over its mortgage lending as early as Thursday, according to people familiar with the matter, capping a legal odyssey that has dogged it since the depths of the financial crisis.

The deal will resolve a government investigation that stems largely from the bank’s purchases of Merrill Lynch & Co. and Countrywide Financial Corp. as they teetered in the housing crisis. More than $1 billion of the payout from the Charlotte, N.C., bank could go to a handful of states, according to a person familiar with the deal.

The settlement amount is the largest ever reached between the U.S. and a single company, and is approximately equal to the bank’s total profit for the past three years. Bank of America has spent more than $60 billion on legal woes stemming from the financial crisis, and the latest settlement would push the tab to close to $80 billion.

The settlement could provide a turning point for Bank of America: Chief Executive Brian Moynihan, who has spent much of his 4½ years as CEO wading through litigation, has told investors and analysts this is the last of the big, lingering financial-crisis problems.

Laura Lorenzetti wrote for Fortune that the fine might not be comparable with others in the industry:

Though, when compared to the amount of mortgage-backed securities issued by each bank, the fine falls in-line with the likes of JPMorgan and makes Bank of America look like it got off easy compared to Citigroup. An especially lucky break since Countrywide, which Bank of America bought before the height of the crisis in 2008, was connected with some of the worst subprime mortgages.

In addition to the monetary fines, the deal requires the bank to acknowledge its role in allegedly masking the quality of the mortgage-backed securities it sold, as well as those of Countrywide Financial and Merrill Lynch. Bank of America purchased the two firms in 2008.

The New York Times team of Ben Protess, Jessica Silver-Greenberg and Michael Corkery reported that no criminal charges are likely to come against executives:

The Bank of America settlement will be a coda to a painful period for the bank and the broader financial industry. More than any other Wall Street giant, Bank of America was the source of the toxic subprime loans that helped ignite the crisis — the result of its acquisitions of Merrill Lynch and Mr. Mozilo’s Countrywide Financial. The size and scope of the expected settlement, which could be announced as soon as Thursday, reflects the extent of the damage.

The deal would resolve more than two dozen investigations from prosecutors across the country, the people briefed on the matter said, including Manhattan, Brooklyn, Los Angeles, New Jersey and North Carolina. To settle those varied investigations, some of which have not been previously reported, the bank is expected to pay a $9.6 billion cash penalty and $7 billion in so-called soft-dollar payments to aid struggling consumers. In turn, the Justice Department will forgo any potential cases against the bank overcollateralized debt obligations, one of the people said, complex financial instruments the bank sold in the years before the crisis.

While no bank executives will face charges as part of the settlement, the people said, the prosecutors in Los Angeles are preparing a lawsuit against Mr. Mozilo, Countrywide’s co-founder. Mr. Mozilo, who previously reached a $67.5 million settlement with the Securities and Exchange Commission, was an early target of the Justice Department.

Writing for Bloomberg, Hugh Son, Tom Schoenberg and Keri Geiger pointed out that the settlement is in addition to others by the bank:

Countrywide has been blamed by lawmakers and regulators for using lax underwriting standards and predatory lending that fueled its ascent to the biggest U.S. mortgage lender before its collapse and sale.

The amount of any settlement would come on top of the $9.5 billion the bank agreed to pay in March to resolve Federal Housing Finance Agency claims.

In a separate matter, Bank of America was ordered yesterday to pay $1.3 billion in penalties for defective mortgage loans that Countrywide sold to Fannie Mae and Freddie Mac before the crisis. The bank may challenge the ruling, Grayson said.

The cleanup is akin to climbing a mountain burdened by a 250-pound backpack, Moynihan has said. He dismantled much of Countrywide, closing reverse-mortgage and correspondent-lending units, shutting offices and eliminating thousands of jobs. He made deeper staff cuts in the past year after mortgage volumes declined amid higher interest rates and home prices.

“It’s taken longer to resolve the mortgage stuff than we all would have hoped,” Moynihan said in May. “That’s probably the biggest disappointment in terms of just the atmosphere around the company.”

I’m sure that investors feel the same way as Moynihan. It would be great for the bank to put all its woes behind it and focus on moving forward. The clarity is good, but with more still to come, it’s hard to say when the bank will be ready to focus on growth.