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N.Y. to receive $800 million of Bank of America settlement

Rochester Business Journal
August 21, 2014

New York is slated to get $800 million as its share of a nearly $17 billion settlement announced Thursday between Bank of America Corp. and the Residential Mortgage-Backed Securities Working Group.

The bank’s deal with the state and federal task force is the largest U.S. big-bank, toxic-mortgage settlement to date, surpassing a previously negotiated $13 billion settlement with JPMorgan Chase & Co., New York Attorney General Eric Schneiderman said. He co-chairs the task force.

Created to investigate wrongdoing that led to the 2008 U.S. mortgage crisis, the RMBS task force has targeted five big banks. Other banks in its crosshairs are Citigroup Inc., which previously agreed to a $7 billion settlement, Wells Fargo & Co. and Ally Financial Inc.

Slightly more than half of New York’s allotment in the Bank of America settlement—$500 million—is marked for consumer relief, with the balance of $300 million in cash to go into the state’s coffers.

As part of the $16.65 billion settlement, Bank of America admits that it—as well as the mortgage and financial services firms it took over during the mortgage meltdown, Countrywide Mortgage and Merrill Lynch—knowingly promoted substandard residential mortgages and helped bundle the bad loans into mortgage-backed bonds.

After years of wildly rising home values, real estate markets in many U.S. cities collapsed in 2008 as the loans in such securities came due and borrowers walked away from overpriced homes they could not afford to pay for. 

As part of the settlement announced on Thursday, Bank of America admitted to lying to the RMBS task force, the Department of Housing, Urban Development, the Federal Housing Administration, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. about the quality of mortgages it and Countrywide wrote. 

In October, a federal court found that Bank of America, which bought Countrywide in 2008 as the mortgage company teetered on the brink of failure, could be held liable for Countrywide’s prior conduct in promoting bad loans and unloading toxic mortgages on the Federal National Mortgage and Federal Home Loan organizations.

Respectively known as Fannie Mae and Freddy Mac, both were created as quasi-governmental agencies whose purpose is to buy mortgages from loan originators and package the loans into securities as a way of fostering a secondary mortgage-loan market.

Federal prosecutors said that in a 2007 program designed to pump its sales volume, Countrywide knowingly sold loans to unqualified borrowers and then passed the bad loans on to Fannie Mae and Freddy Mac.

Struggling under the weight of those uncollectable loans, Fannie Mae and Freddy Mac were taken over by the federal government shortly after Bank of America bought Countrywide.  

(c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail

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