Bank of America is guilty of selling fraudulent mortgages to Fannie Mae and others The second-largest lender in the US, Bank of America, has agreed to pay more than $11 billion in restitutions for its role in the burst mortgage bubble that triggered the so-called financial crisis of 2008 .The Charlotte-based bank said on Monday that it had agreed to pay a total of around $11.65 billion (€8.83 billion) to settle claims on "toxic" residential home loans it sold to the US government mortgage agency Fannie Mae.
The settlement included a $3.6 billlion payment in cash to Fannie Mae, as well as the repurchasing of residential mortgages worth $6.75 billion.
"These agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing our expenses over time," Bank of America's chief executive, Brian Moynihan, said.
Fannie Mae said in a separate statement on Monday that Bank of America would pay a further settlement of $1.3 billion to address mortgage servicing issues.
"A favourable resolution of this long-standing dispute between Fannie Mae and Bank of America is in the best interest of taxpayers," Fannie Mae's executive vice president, Bradley Lerman, said.
The US Justice Department ruled last October that Bank of America and its Countrywide Financial Corporation rushed through the processing of home loans and thus sold defective and fraudulent mortgages to Fannie Mae and the other US government agency Freddie Mac. Bank of America bought Countrywide, once the US' largest mortgage lender, in 2008.
Mortgage securities, involving many home loans bundled together into lump investments, became increasingly popular in the run up to the so-called "financial crisis" of 2008. When individual mortgage holders were unable to keep up with repayments, the values of these securities nosedived - helping spark the sudden economic downturn.
Seeking to capitalise on rising property prices prompted by easily-available credit, many lenders cut corners vetting house buyers, lending large sums to people who ultimately could not afford them.
Fannie Mae and Freddie Mac are believed to have lost around $300 billion in total on these securities, the lenders required a US government rescue worth a combined $180 billion to stay afloat.
Source: Deutsche Welle