Side Deal With Bank Of America Would Cede Liability In Exchange For Homeowner Relief
First Posted: 8/2/11 05:52 PM ET Updated: 8/2/11 05:57 PM ET
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WASHINGTON -- Federal and state prosecutors are in advanced negotiations with Bank of America in pursuit of a settlement that would forgive the bank for a broad range of past mortgage abuses in exchange for fines that would finance a significantly expanded relief program for struggling homeowners, according to three people with direct knowledge of the matter.
The negotiations are separate from ongoing talks between the nation's five largest mortgage handlers and the U.S. Department of Justice, the Department of Housing and Urban Development and all 50 state attorneys general. Those talks, led by Justice and involving all five companies, are seeking a settlement to resolve allegations of past wrongdoing like so-called "robo-signing," in exchange for lower payments and reduced mortgages for potentially millions of troubled borrowers.
But the options under discussion with Bank of America, the largest U.S. bank by assets, go beyond what's on the table in the larger group talks. Justice, along with a small band of state legal officers, is pursuing an agreement that would have the bank forgive what participants described as a significant amount of mortgage principal owed by distressed borrowers in exchange for receiving an effective grant of immunity from government prosecution related to alleged mortgage and foreclosure wrongdoing.
Only a small, select group of states are involved in pursuing the side deal with Bank of America, sources said. The other banks targeted by the government -- JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial -- are engaged in similar individual negotiations with prosecutors. None of those talks are at such an advanced stage, though.
The agreement, if reached, could be used as a template for the other four banks. The state and federal prosecutors are operating on the assumption that if they could strike a deal with Bank of America -- the nation's largest mortgage servicer -- that would compel the other large banks to go along or risk prosecution.
Participants described the talks as fluid. Remaining issues include the scope of the release and the breadth of borrower relief, sources said.
For example, it could involve a release from liability for alleged lending abuses; alleged failure to properly securitize home loans in accordance with state laws; alleged abuses of distressed borrowers who fell behind on their payments; alleged illegal behavior when foreclosing on those homeowners; immunity from suits involving a combination of those claims, or from all of them -- an effective grant of immunity from prosecution.
Prosecutors are contemplating giving Bank of America this kind of a broad release -- something not yet on the table for the other institutions, sources said -- but in exchange for more money to be used to finance mortgage modifications for a targeted set of borrowers.
The bigger the release, the more money banks like BofA would be willing to shell out to lower payments, reduce outstanding amounts owed, and provide for borrowers to transition out of their homes and into rentals.
Of course, the flip side of that is the banks could largely escape prosecution of alleged widespread wrongdoing.
Other outstanding issues include whether government-controlled mortgage firms Fannie Mae and Freddie Mac are involved. The twin giants own or guarantee more than half of all outstanding home loans. But their federal regulator, the Federal Housing Finance Agency, has been reluctant to allow loans from Fannie or Freddie to be part of the deal, sources said. The two companies employed law firms that used robo-signers.
If an accord were reached, which participants stress is a ways away, borrowers that met the following criteria would be eligible for some kind of assistance:
- Their mortgages would have to either be owned by Bank of America or be serviced by the bank on behalf of private investors. Fannie or Freddie loans would not be eligible;
- A current principal balance of 1 million or less;
- The homes would have to be occupied by the owner, so no investor-owned properties;
- And the borrowers' monthly mortgage obligation would have to comprise at least 25 percent of their monthly income.
Participants believe such a pool would lessen the risk posed by moral hazard, a scenario in which people escape consequences for destructive activity, thus encouraging more destructive activity in the future, sources said. Eligibility would also be limited to homeowners in distress, which can be defined by the number of days late a borrower is on his mortgage payments or whether their income is too low to support their payment obligations.
The program would in part build upon a deal reached earlier this year between Justice and Bank of America to settle allegations that the lender wrongfully foreclosed on active-duty members of the military, sources said.
An accord would provide a sense of finality to BofA's shareholders, who have seen the value of their holdings erode over the past year as the bank's mortgage-related losses have mounted. Shares are down 34 percent over the past year. By comparison, the 24-company KBW Bank Index, which tracks large banks like BofA, is down just 11 percent over the same time period.
Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 1-917-267-2335.
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0 minute ago (10:15 AM)
What a pant-load. BofA along with Chase should be brought down for their deceptive loan practices and total off the radar refusal to work with home owners. What our "governmen17 minutes ago (9:58 AM)
CEO's of banks should be held liable to the fullest extent of the law, their pay, which the don't earn, means they have a handle on each phase of the banks operation, if they don't they're a fraud. If you the driver of the robbers get away car, you to will be charged with robbery. In this case they are the driver or the thief it makes no different.
11 minutes ago (10:05 AM)
good analogy!17 minutes ago (9:58 AM)
I don't understand what's wrong with just prosecutin18 minutes ago (9:57 AM)
My clients and myself have bought hundreds of houses from this bank at rock bottom prices. They are clearly in a panic. Im the guy that has flipped 4000 houses and train others to do it. Check out my site www.chucks
27 minutes ago (9:49 AM)
Relief package can go to Hell. These guys need to be prosecuted
39 minutes ago (9:36 AM)
Quite so. For crimes committed against one group of people (those who have already lost and vacated their homes) a second, unrelated group of people will be "saved" (definitio40 minutes ago (9:35 AM)
can anybody remember the last time a millionair42 minutes ago (9:33 AM)
try robbing a bank and see if you get the same deal when caught43 minutes ago (9:32 AM)
What branch is doing the negotiatin48 minutes ago (9:28 AM)
For three years we have been trying to negotiate with BOA for my 83Y/O Mother-in Law. BOA has continual played a stall game and requested over and over the same informatio6 minutes ago (10:09 AM)
Ask your attorney where thousands of people can go to dispute this mess and meetings of negotiatio50 minutes ago (9:26 AM)
So the consumer gets hurt, the banks make oodles of money, they pay a token fine to the government and the consumer is never compensateNo justice that I can see.
I'd rather see a one month payment across the board for every mortgage holder. Paid from the huge bonuses that the bankers paid themselves
5 minutes ago (10:10 AM)
They can also, provide one huge check to all the people they robbed. They know who they are. Take out the list and print the checks. This way, there will not be a need to depend on some government agency to spread the money to whom?53 minutes ago (9:23 AM)
If you think about it, this all started almost 20 years ago when they let banks cross state lines. Banks and financial institutio53 minutes ago (9:22 AM)
Whats to negotiate?57 minutes ago (9:18 AM)
You can be absolutely sure that any "deal" will be to the pure advantage of the Banks and nobody else. They will, as they always do, fill the agreement with words like "may be available"After this recent Budget, Deficit, Spending "deal", better watch out! Average time to get a modificati
59 minutes ago (9:16 AM)
when I was young I asked my priest how to get to heaven and still protect yourself form all the evil in the world, he told me what God told his children – you are sheep amongst wolves, be wise as serpents yet innocent as doves.” --- Gone Baby Gone -- ( From Matthew 10: 16 ? )
