Bank of America is negotiating to pay at least $12 billion to settle several federal and state civil probes for its role in the housing mess that led to the 2008 financial crisis, a person familiar with the talks said.
Executives from the Charlotte bank as well as officials from the Justice Department have been meeting to discuss the fine recently, the person said. Negotiations, however, are in an early phase, another person familiar with the matter cautioned. The size of the settlement being discussed was first reported by The Wall Street Journal on Thursday.
The massive payout, combined with the $6 billion the bank already agreed to pay the Federal Housing Finance Agency for its handling of toxic mortgages, would exceed the record $13 billion JPMorgan Chase paid last year to resolve similar charges.
Such a deal also could help the Justice Department press other global financial firms to pony up huge amounts for their role in creating the financial crisis that threatened to topple the global banking system and pushed the economy into recession.
A minimum of $5 billion of Bank of America’s fine could be used toward helping homeowners reduce the amounts they owe on their mortgages or assisting struggling neighborhoods that were hit hard by the housing downturn, said the person familiar with the matter, who spoke on condition of anonymity because the deal was not final.
Bank of America, JPMorgan and others are accused of selling shoddy home loans to unqualified consumers, packaging those mortgages into securities – allegedly knowing they would eventually go sour – and selling them to investors around the world.
In 2008, the consequences of the loose mortgage practices began to play out. The losses on mortgage investments sparked bank runs. Lending all but stopped. Stock markets plunged and home values plummeted across the country.
So far, federal officials generally have preferred to pursue massive civil fines, using securities statutes, rather than pursue criminal cases against financial firms. As a result, banks have struggled to restore their reputation since the financial crisis and have had to spend tens of billions in legal fees to fend off federal and state probes, but almost no senior executives have faced the possibility of jail time.
Still, a $12 billion fine for Bank of America would be hefty for a bank that earned more than $10 billion last year.