American banks struck two multibillion-dollar settlements yesterday to end claims connected to the housing bust that triggered the financial crisis and plunged the US into recession.
In separate announcements, Bank of America said it would cough up more than $10bn (£6.2bn) to settle claims over housing loans sold to Fannie Mae, the US government-backed mortgage finance giant, while regulators said they had reached an $8.5bn deal with a group of 10 major lenders, including Bank of America, JP Morgan Chase, Citigroup and Wells Fargo, to resolve possible claims of foreclosure abuses.
The group of 10 will pay $3.3bn to eligible Americans who went through foreclosure, with the borrowers expected to receive compensation of up to $125,000 depending on the facts of their respective cases. A further $5.2bn will go towards other help, including loan modifications and forgiveness.
Regulators said they had reached the deal, which follows a foreclosure review process than began in April 2011, to ensure swift relief for borrowers who had been unlawfully caught up in foreclosures or had suffered other harm because of errors. "We have learned a great deal from the reviews that have been conducted to date," Thomas Curry, the US Comptroller of the Currency, said.
"However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners.... Our new course of action will get more money to more people more quickly."
Bank of America's settlement with Fannie Mae, which was separate from the regulatory deal over foreclosures, will see the Charlotte, North Carolina-based bank buy back $6.75bn worth of residential loans from the mortgage finance firm. Bank of America will also pay Fannie Mae more than $3bn.
Bank of America will also pay Fannie Mae more than $3bn in cash, with the settlement set to hit the bank's fourth-quarter, pre-tax income by some $2.7bn.