Bank of America has agreed to pay $45 million to Delaware and provide significant financial benefits to Delaware homeowners to settle allegations that it misled investors about the riskiness of mortgage-backed securities, Attorney General Beau Biden announced this week.
The settlement is the latest development in Biden’s effort to ensure accountability by financial institutions responsible for the mortgage crisis. Including the $45 million that Bank of America will pay, the effort has secured at least $180 million in mortgage-related settlements.
Delaware’s settlement with Bank of America is part of a $16.7 billion settlement announced last Thursday between the bank, the United States Department of Justice, Delaware and five other states — California, Illinois, Kentucky, Maryland and New York.
“Our financial system only works when everyone plays by the rules, and there must be accountability when those rules are broken,” said Biden, whose office secured nearly $20 million in a settlement with J.P. Morgan Chase in November and $17 million from Citigroup in a settlement last month.
“The mortgage crisis wrecked our economy and devastated families and neighborhoods throughout Delaware and the nation,” Biden said. “We cannot allow the mortgage crisis to be a man-made disaster for which there is no accountability. The funds we have secured in these settlements are being put to work helping thousands of Delaware families avoid foreclosure, strengthening communities hit hard by the fallout from the housing crisis, holding banks accountable and reimbursing government losses. Our work is not done.”
Delaware’s settlement comes in three parts:
• Bank of America will pay $31.6 million to the State. As with previous settlements, the funds must be used to remediate the harm Delaware’s communities suffered as a result of the housing crisis;
• Bank of America will pay $13.4 million to reimburse government entities for losses suffered on Bank of America, Merrill Lynch and Countrywide investments that were wrongly marketed as being low-risk; and
• Bank of America will make direct financial benefits, such as mortgage modifications and forgiveness of second mortgages, available to homeowners. Under the terms of the settlement, Bank of America must provide at least $150 million in benefits to consumers in Delaware, Maryland and Kentucky (the three smallest states participating in the settlement).
Homeowners with mortgages serviced by Bank of America may be eligible for the benefits. To determine eligibility, homeowners should contact Bank of America at 1-877-488-7814 or Biden’s Office of Foreclosure Prevention at 1-800-220-5424.
The settlement with Bank of America, along with the two recent settlements with J.P. Morgan Chase and Citigroup, resolves allegation centering on the bank’s bundling and sale of mortgages to investors. The investments — bought by pension funds, mutual funds and other investors — were represented as low-risk but were in fact much riskier than advertised. The resulting losses were disastrous for the economy, the AG’s Office said.
The Bank of America matter was handled for Delaware by Investor Protection Director Owen Lefkon, Deputy Attorney General Timothy Worthington and Fraud Division Director Matthew Lintner.