Bank of America braced for record $17bn settlement over mortgage mis-selling claims

The deal with the US Department of Justice dwarfs those reached by Citigroup and JPMorgan Chase

(AFP/Getty)

Bank of America was today poised to agree a record $17 billion (£10.25 billion) deal with US regulators over the mis-selling of mortgage-backed bonds ahead of the financial crisis.

The deal with the Department of Justice and a number of individual state regulators dwarfs those reached in the last year by Citigroup ($7 billion) and JP Morgan Chase ($13 billion).

The settlement was reached through a joint federal and state working committee of regulators set up two years ago. It includes representatives from New York, California and New Jersey.

It is expected that $9.7 billion of the deal will be in the form of cash payments or fines with a further $7 billion in so-called “consumer relief” which includes things such as reducing the balance of borrowers’ mortgages.

The deal also requires Bank of America to acknowledge that it made serious misrepresentations about the quality of residential, mortgage-backed securities issued by itself and by Countrywide Financial and Merrill Lynch. These were two firms bought or bailed out by the bank at the height of the 2008 financial crisis.

Bank of America declined to comment ahead of the DoJ announcement. Under chief executive Brian Moynihan, it has already tallied up almost $55 billion of charges relating to mortgages, almost all of which were due to Countrywide.

Former Countrywide executives, including co-founder Angelo Mozilo, face the likelihood of individual civil suits against them by US prosecutors, according to reports today.

Bank of America’s $4 billion takeover of Countrywide in 2008 is widely seen as the worst acquisition ever, having cost it more than 10 times the purchase price in losses and legal settlements. In March it paid $9.5 billion to settle Federal Housing Finance Agency claims.