Skip to main content
Advertising

Originally published August 21, 2014 at 6:27 AM | Page modified August 22, 2014 at 9:13 AM

  • Share:
             
  • Comments
  • Print

Bank of America settlement likely to benefit few

Bank of America's record $16.65 billion settlement for its role in selling shoddy mortgage bonds -- $7 billion of it geared for consumer relief -- offers a glint of hope for desperate homeowners.


Associated Press

Reader Comments
Hide / Show comments
The reason Iceland stopped having problems with bankers is because the government jailed them. Here were told bankers... MORE
The fact that no one mentions Goldman Sachs indicates the widely held, but shallow, understanding most have of this... MORE
@Time Flies Its Fun ".Gov forced BofA to buy both companies in 2008. and turns around and fines them for what they did... MORE

advertising

WASHINGTON —

Bank of America's record $16.65 billion settlement for its role in selling shoddy mortgage bonds -- $7 billion of it geared for consumer relief -- offers a glint of hope for desperate homeowners.

The settlement requires the second-largest U.S. bank to reduce some homeowners' loan balances, provide new loans to low-income buyers and address areas of neighborhood blight.

But consumer advocates say relatively few people will be helped relative to the devastation triggered by the mortgage bonds, which fueled the worst financial crisis since the 1930s and threw millions of homes into foreclosure.

Only a fraction of homeowners would be eligible for refinancing under the settlement. And the process by which people would qualify and receive aid could drag on for years, with payouts set to be completed as late as 2018.

Those who have already lost homes to a foreclosure or a short sale -- when a lender accepts less money from a sale than what the borrower owes -- wouldn't likely benefit at all.

"It is certainly better than nothing," said Bruce Marks, chief executive of the nonprofit Neighborhood Assistance Corporation of America. "But for the millions who lost their homes, it reinforces the appearance that the government has not been on their side."

Monnette Holland had been anxiously waiting the settlement, wondering if it might save her four-bedroom home in Franklin, Virginia.

"It has been a nightmare," she said. "I was hoping that we could keep our home."

Holland had refinanced her house in 2006 with Countrywide, a firm that was later bought by Bank of America and that made up the bulk of toxic mortgage securities involved in the settlement.

Holland, a 65-year-old former legal secretary, used the proceeds from the refinancing to pay off auto loans and install a new roof and windows. But then her husband was forced into an early retirement at a paper mill. And Holland had to go on disability because of arthritis and other health problems.

The couple tried and failed several times to modify their mortgage, only to learn that its owner kept changing: After Countrywide, it was Bank of America, later Specialized Loan Servicing and most recently Bank of New York Mellon.

As an alternative to foreclosure, Holland listed her house -- worth $270,000 at its peak -- for less than $90,000 in a short sale. A buyer made an offer just days before the Justice Department settlement was announced Thursday.

The Bank of America settlement will include the appointment of an independent monitor to review the consumer relief. This could take weeks and mean that "thousands of people who right now are in default or foreclosure" will miss the chance to reduce their mortgage balances, said Shanna Smith, president of the National Fair Housing Alliance.

Smith's organization has investigated the fallout from the foreclosures. It has filed a complaint with the Department of Housing and Urban Affairs that banks failed to maintain properties after borrowers defaulted. The alliance said it found that Bank of America enabled foreclosed homes in minority communities in Orlando, Denver, Memphis, Atlanta and elsewhere to slide into disrepair.

As part of the consumer relief, Bank of America has essentially pledged to help remedy the neighborhood blight its neglect helped cause when it auctioned off foreclosed homes at steep discounts, Smith said.

"Bank of America created the problem," she said.

The agreement with Bank of America caps a trio of deals over the past nine months. Each has been designed to punish some of the country's leading financial institutions for their roles in bundling subprime mortgages into securities that were misleadingly sold as safe investments despite the high likelihood that borrowers would default.

JPMorgan Chase & Co. agreed to a $13 billion settlement while Citigroup reached a separate $7 billion deal. Though the JP Morgan chase settlement was announced in November, the planned $4 billion in relief has yet to benefit many homeowners, according to the Home Defenders League, a national advocacy group.

Bank of America had initially resisted a settlement, because almost all the bad mortgage securities that led to the settlement came from Countrywide and Merrill Lynch, the two troubled firms the bank acquired in 2008 as the financial meltdown erupted.

But a federal judge in Manhattan ruled in a separate case that Bank of America was liable for those pre-merger mortgages and issued a penalty of nearly $1.3 billion. That helped spur the bank to forge a deal, with CEO Brian Moynihan saying Thursday that it is "in the best interests of our shareholders and allows us to continue to focus on the future."

The settlement will resolve allegations that the bank and companies it later bought misrepresented the quality of loans they sold to investors. Besides the consumer relief, the deal includes a $5 billion cash penalty and $4.6 billion in remediation payments. The consumer relief and remediation payments could be tax-deductible for Bank of America depending on IRS guidance.

Bank of America's stock surged more than 4 percent Thursday to close at $16.16.

No major bank executive has faced criminal charges stemming from the mortgage crisis. But the U.S. attorney's office in Los Angeles is preparing a civil lawsuit against Angelo Mozilo, Countrywide's former chairman and chief executive, according to a person with knowledge of the preparations. The lawsuit would stem from the subprime mortgages offered and sold by Countrywide.

Government officials touted the consumer relief being offered in the Bank of America settlement. Florida Attorney General Pam Bondi said more than $1 billion would flow to 17,000 Florida homeowners in need. But some of that money will likely be routed through the federal government's Making Home Affordable Program, which was already supposed to be providing mortgage modifications and write-downs.

That program had helped 1.3 million homeowners as of November -- fewer than half the 3 million to 4 million the government had originally expected, according to a February report by the Government Accountability Office.

And those 17,000 Florida homeowners represent just 1.8 percent of the state's population living in homes worth less than their mortgage balance, according to the real estate firm Zillow.

U.S. Attorney General Eric Holder said at a news conference that the relief package was "appropriate given the size and scope of the wrongdoing at issue."

Consumer advocates note that millions of Americans are still struggling to pay their mortgage more than five years after the Great Recession ended, a sign that the settlements are less than adequate.

"It is hard to see how these settlements provide relief commensurate with the harm caused," said Kevin Stein, associate director of the California Reinvestment Coalition. "Countless families and communities have been devastated by predatory loans that should not have been made."

___

Associated Press writer Jeff Horwitz contributed to this report.



Want unlimited access to seattletimes.com? Subscribe now!

Also in Business & Technology

News where, when and how you want it

Email Icon

Get ready for 2015

Get ready for 2015

The Seattle Times 12-month wall calendar features hand-picked photos of life in the Pacific Northwest. Order while supplies last!

Advertising

Advertising


Advertising
The Seattle Times

The door is closed, but it's not locked.

Take a minute to subscribe and continue to enjoy The Seattle Times for as little as 99 cents a week.

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Subscriber login ►
The Seattle Times

To keep reading, you need a subscription upgrade.

We hope you have enjoyed your complimentary access. For unlimited seattletimes.com access, please upgrade your digital subscription.

Call customer service at 1.800.542.0820 for assistance with your upgrade or questions about your subscriber status.

The Seattle Times

To keep reading, you need a subscription.

We hope you have enjoyed your complimentary access. Subscribe now for unlimited access!

Subscription options ►

Already a subscriber?

We've got good news for you. Unlimited seattletimes.com content access is included with most subscriptions.

Activate Subscriber Account ►