Who’s sorry now after Bank of America agreed to pay $16.65 billion to settle mortgage claims generated by the housing meltdown, bringing to $37 billion the amount forked over by big banks for their evil ways.
The New York Times says—for the big banks—not so much as one might expect. No bankers are going to jail and a big chunk of the money will be treated as ordinary expenses for tax purposes. “These tax write-offs shift the burden back onto taxpayers and send the wrong message,” U.S. Public Interest Research Group analyst Phineas Baxandall told the Times.
Around $800 million of the latest settlement is headed for California and, like the earlier settlements, only a portion is aimed at homeowner relief. Moody’s doesn’t think BofA will take much of a hit on that account because “most of the cost of homeowner relief is already incorporated into existing loan-loss reserves.”
The BofA settlement includes about $7 billion in “soft” money, another way of describing help to consumers. Of course, many of the borrowers who got hosed in the debacle have already lost their homes to foreclosure. The Times described the terms of the deal as providing more consumer relief than the $13-billion settlement with JPMorgan Chase last year and the $7-billion settlement with Citigroup Inc. in July.
But it’s all relative. The lion’s share of the settlement nationally goes to institutional investors and governments that got abused by the banks. It’s not quite that way in California. The state’s two big public employee pension funds, California Public Employees' Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), will get $300 million and $500 million will fund consumer relief.
Consumer relief is a nebulous term that includes a very small portion of money for loan forgiveness and modification. But a big chunk goes to the financing of affordable rental housing, counseling, legal aid and the donation of property.
California picked up $200 million in the Citigroup deal and $300 million from JPMorgan Chase.
BofA is being held accountable for the sins of two lending institutions it purchased during the meltdown, Merrill Lynch and Countrywide Financial Corp. U.S. Attorney General Eric Holder, in announcing the settlement, described them as engaging in “pervasive schemes to defraud financial institutions and other investors in structured financial products known as residential mortgage-backed securities, or RMBS.”
He said they schemed to package what they knew were worthless “toxic” loans and peddle them as security for complex financial instruments that were sold everywhere for years. “These loans contained material underwriting defects; they were secured by properties with inflated appraisals; they failed to comply with federal, state, and local laws; and they were insufficiently collateralized.”
But they were much beloved in the marketplace, where almost no institution questioned securities so complex and opaque that they couldn’t begin to fathom what was in them. All they knew was they could resell them in the market at a big profit . . . until they couldn’t.
When the bubble burst, big investors like CalPERS and CalSTRS, were left holding the flaming bags of crap, and homeowners, battered by the nosediving jobs market and collapsing real estate prices, were screwed. The government quickly jumped in to save too-big-to-fail banks with billions of taxpayer dollars and years later is striking deals with said banks to do something for everyone else.
The Sacramento Bee said the deal will make very few homeowners eligible for refinancing. And it may be 2018 before aid payouts are available. Bruce Marks, chief executive of the nonprofit Neighborhood Assistance Corporation of America, told the Bee, “It is certainly better than nothing. But for the millions who lost their homes, it reinforces the appearance that the government has not been on their side.”
BofA stock closed up 4% Thursday.
–Ken Broder
To Learn More:
Bank of America Reaches $16.65 Billion Mortgage Settlement (by Michael Corkery and Matt Apuzzo, New York Times)
Bank of America Settlement Likely to Benefit Few (by Josh Boak, Pete Yost and Marcy Gordon, Associated Press)
California Pensions, Consumers Get $800 Million from Bank of America Case (by Dale Kasler, Sacramento Bee)
Bank Of America to Pay Record $16.65 Billion to Settle Mortgage Claims (by Jim Puzzanghera, Los Angeles Times)
Over Half Billion Dollar Settlement with Bank of America (California Attorney General’s Office)
California Homeowners’ $90 Million Haul in $7 Billion Citi Settlement Is 5 Times CEO’s Pay (by Ken Broder, AllGov California)