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32 SETTLEMENT SPOTLIGHT A LOOK AT THE FEDERAL GOVERNMENT'S LATEST NEGOTIATIONS WITH TOP BANKS BANK OF AMERICA SETTLES CLAIMS FOR RECORD $16.65 BILLION Bank of America announced it has agreed to pay a record $16.65 billion to resolve claims related to the sale of toxic mortgage-backed securities during the years leading up to the financial crisis. e settlement, which comes after months of reportedly heated negotiations, is the largest civil settlement with a single entity in the history of the United States, eclipsing last year's record- setting $13-billion agreement between the U.S. Department of Justice and JPMorgan Chase. at settlement was over similar matters. According to the announcement, Bank of America has agreed to pay a total of $9.65 bil- lion in cash to the Justice Department, various federal regulators, and the states of California, Delaware, Illinois, Kentucky, Maryland, and New York. e remaining $7 billion will come in the form of consumer relief, including mortgage modifications, community stabilization ef- forts, and enhanced efforts to lend to low- and moderate-income communities. e agreement releases the megabank from a number of current and potential claims over its securitization of bad mortgages, including allega- tions that it was aware the loans underlying the securities were bad and that it knowingly misrep- resented those mortgages when they were sold. It also releases the bank from certain claims related to violations of underwriting guidelines in its production of loans insured by the Federal Housing Administration (FHA). In a statement, Bank of America noted the claims against the bank primarily focused on conduct that occurred at Countrywide and Merrill Lynch before its acquisition of the two companies. e statement adds that the settle- ment is expected to cut BofA's third-quarter pretax earnings by $5.3 billion. "We believe this settlement, which resolves significant remaining mortgage-related expo- sures, is in the best interests of our shareholders and allows us to continue to focus on the future," said CEO Brian Moynihan. e agreement marks one of the last major legal hurdles Bank of America has had to clear this year. In July, the firm announced a year-over-year decline in second-quarter profits, largely due to litigation expenses related to legacy mortgage problems. at was followed up weeks later by a ruling that the bank must pay $1.3 billion in a case related to problem loans originated by Countrywide. Obama administration officials praised the settlement. "Under the terms of this settlement, the bank has agreed to pay $7 billion in relief to strug- gling homeowners, borrowers, and communities affected by the bank's conduct," U.S. Attorney General Eric Holder said in a speech. "is is appropriate given the size and scope of the wrongdoing at issue." e resolution to the claims against Bank of America "requires those we are holding account- able to shoulder some of the responsibility for repairing the damage caused by their conduct," U.S. Associate Attorney General Tony West said. "In this case, that's achieved by the $7 bil- lion in consumer relief the attorney general mentioned just a moment ago," West contin- ued. "is is one of the largest consumer relief packages we have ever assembled with a single financial institution, and its impact could benefit hundreds of thousands of Americans still strug- gling to pull themselves out from under the weight of the financial crisis." Forms of consumer relief include loan modifications, new loans to buyers struggling to obtain a loan, victims of foreclosure or those who lost homes in short sales, and first-time buyers with moderate incomes. As part of the settle- ment, Bank of America will donate to housing counseling agencies in order to prevent foreclo- sures and make rental housing more affordable by providing financing, HUD says. e bank will also make donations to legal aid organiza- tions and community development funds. "Today's settlement with Bank of America is another important step in the Obama admin- istration's efforts to provide relief to American homeowners who were hurt during the housing crisis," HUD secretary Julián Castro said. "HUD remains committed to solidifying the housing recovery and creating more opportuni- ties for Americans to succeed." Bank of America is not the first financial entity to agree to a multibillion-dollar settlement with the government in the last year. In No- vember 2013, JPMorgan Chase agreed to pay $13 billion, which was the previous record settlement for a single entity with the government prior to the Bank of America announcement. In July 2014, Citi settled with the DOJ for $7 billion. Attorney General Eric Holder is leading the charge to extract billions in settlement money from the major banks.

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