Bank of America reached a settlement with federal prosecutors over the sale of mortgage-backed securities in the run-up to the 2008 financial crisis. BofA will pay 10 billion cash and about 7 billion in consumer aid. Most of BofA’s trouble is inherited from its purchase of Countrywide Financial. BofA was charged with misrepresenting the quality of loans it sold to investors.
BofA sold residential mortgages from borrowers who were unlikely able to repay their loans; yet, these securities were promoted as safe investments. Subsequently, the housing market collapsed and investors suffered billions of dollars in losses.
The consumer aid component should come in the form of reducing the principal on loans BofA knows it cannot recover in full. This is one of the “consumer-friendly” activities BofA can engage in order to achieve “credits.” Credits consist of a multiple for each dollar spent on each form of consumer relief. Critics claim that because of credits, tax write-offs, and “other tricks” the fines paid by banks who break the law are worth only a fraction of the amount.