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Obama administration officials praised Thursday's $16.65 billion settlement between Bank of America and the U.S. Department of Justice, $7 billion of which will go to provide consumer relief to assist those distressed by the collapse of the housing market in 2008.
The U.S. Department of Housing and Urban Development (HUD) announced on Thursday that Bank of America will pay $800 million to FHA-related claims and $200 million to the Government National Mortgage Association (Ginnie Mae). The remaining money (nearly $16 billion) goes to settle claims related to sales of toxic residential mortgage-backed securities leading up to the housing market collapse six years ago, HUD said.
The amount of the settlement was the largest in U.S. history between a single entity and the government.
"Under the terms of this settlement, the bank has agreed to pay $7 billion in relief to struggling homeowners, borrowers, and communities affected by the bank’s conduct," U.S. Attorney General Eric Holder said in a speech delivered Thursday. "This is appropriate given the size and scope of the wrongdoing at issue."
Thursday's resolution to the claims against Bank of America "requires those we are holding accountable to shoulder some of the responsibility for repairing the damage caused by their conduct," U.S. associate attorney general Tony West said in a speech delivered Thursday immediately following Holder's.
"In this case, that's achieved by the $7 billion in consumer relief the attorney general mentioned just a moment ago," West said. "This is one of largest consumer relief packages we have ever assembled with a single financial institution, and its impact could benefit hundreds of thousands of Americans still struggling 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 settlement, Bank of America will donate to housing counseling agencies in order to prevent foreclosures and make rental housing more affordable by providing financing, HUD said. The bank will also make donations to legal aid organizations and community development funds.
"Today’s settlement with Bank of America is another important step in the Obama Administration’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 opportunities for Americans to succeed."
Bank of America is not the first financial entity to agree to a multi-billion dollar settlement with the government in the last year. In November 2013, JP Morgan Chase agreed to pay $13 billion, which was the previous record settlement for a single entity with the government prior to Thursday's Bank of America announcement. In July 2014, Citi settled with the DOJ for $7 billion. Like the Bank of America settlement, both the JPMorgan Chase and Citi cases involved sales of toxic mortgage-backed securities.
