U.S. Resolves Claims Against BofA Through $1 Billion Settlement

As part of the $25 billion settlement, Loretta E. Lynch, U.S. attorney for the Eastern District of New York, announced that the government will resolve its claims against Bank of America, Countrywide, and certain Countrywide subsidiaries and affiliates for underwriting and origination mortgage fraud.

Since 2009, the U.S. attorney’s office has been investigating lending practices from Countrywide, which BofA acquired in 2008. The results of the investigation led to allegations that the bank created loans insured by the Federal Housing Authority (FHA) to unqualified home buyers. BofA was also accused of originating loans based on inflated appraisals and failing to identify homeowners who could participate in the government’s Home Affordable Modification Program.

Of the $1 billion, $500 million will provide recovery to the FHA, which was said to have incurred hundreds of millions of dollars in damages due to loan origination practices from Countrywide. The remaining $500-million will be used as a fund to provide loan modifications for underwater Countrywide borrowers across the U.S. Under the terms of the agreement, Bank of America will be required to solicit underwater mortgage borrowers for the program. Mortgage principal may also be reduced as part of the modification program. Homeowners must be current on their mortgages to qualify for the plan, according to federal officials.

Should BofA not provide enough modifications to home loan customers who are underwater on their mortgages in the next three years under the program, the unused balance will be forfeited to the government. Qualifying requirements for the program are expected to be released in coming weeks.

“This is the largest false claims act settlement related to mortgage fraud,” said HUD Secretary Shaun Donovan. “And will not only compensate FHA but will also ensure assistance for homeowners who have been harmed by Countrywide.”

The settlement also resolves allegations that arose over the Troubled Asset Relief Program that Bank of America defrauded the government by failing to determine the eligibility of homeowners to take part in the government's Home Affordable Modification Program.