Bank of America announced Wednesday that it will set aside $14 billion to repay investors who bought troubled mortgage-backed securities during the housing boom. Revamping its mortgage business will cost the bank another $6 billion.
The massive settlement is the biggest penalty paid yet by a bank in the wake of the housing collapse. The investments were originally sold by Countrywide Financial, the subprime mortgage lender that was bought up by Bank of America in 2008.
The settlement ends most—but not all—lawsuits by investors, who say that Countrywide misled them about the quality of the securities they were buying. It also removes a cloud of insecurity that’s been hovering around Bank of America for over two years, as investors and stockholders worried about the rising price tag associated with ending so many major lawsuits.
“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us,” Bank of America’s CEO Brian Moynihan said in a press release.
The $14 billion set-aside includes $8.5 billion that will go to 22 major investors, including BlackRock Financial, MetLife and New York Life, which sued BofA last fall. In addition to that whopping payment, the bank will take another $6 billion in charges against its second quarter income. That money will be used to clean up its mortgage business, and to pay off loans related to its purchase of Countrywide.
Altogether, 530 investors bought $424 billion worth of mortgage-backed securities from Countrywide, according to the Bank of America statement. Not all of the investors signed onto the agreement announced Wednesday, which means the total amount the bank must pay could still grow. The settlement must be approved by a New York state court.
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