BofA in tentative $12-bn deal with US regulators to resolve shoddy mortgages probe

Bank of America (BofA) is negotiating a $12-billion fine to resolve civil investigations by the US Justice Department (DoJ) and a number of states into its handling of allegedly shoddy mortgages in the run up to the 2008 financial crisis.

Citing people with knowledge of the matter, The Wall Street Journal yesterday reported that BofA and the DoJ have recently had several meetings, but are yet to reach a tentative deal.

BofA, the second-largest bank in the US by assets, is being pressed to pay billions more than the $12 billion it is offering, which would exceed its 2013 profit of $11.43 billion, the report said.

BofA is accused of issuing $965 billion of shoddy mortgage loans between 2004 and 2008 to consumers not qualified to get the loans, and later packaging them into securities knowing fully well that they would eventually turn bad and subsequently selling them to investors just prior to the global financial crisis.

In the run up to the global financial crisis, sub-prime mortgages were sold to people with low credit and many of them defaulted on their loans when the mortgage market bubble burst, leading to huge losses for banks and other financial institutions which became burdened with so-called ''toxic assets'' requiring taxpayer-funded bailouts.

The $12 billion fine would exceed the record $13 billion paid by JPMorgan Chase last year to resolve similar charges.

The fines are the first action from the residential mortgage-backed securities (RMBS) taskforce, instituted by President Barack Obama in January 2012 to investigate and prosecute alleged frauds tied to mortgage securities that surfaced during the 2008 financial crisis.

It was formed amid widespread criticism over the government's inaction to hold financial sector offenders responsible for the financial crisis.

BofA has also reached a deal in March with the Federal Housing Finance Agency to pay $9.3 billion to settle claims over mis-selling private-label mortgage-backed securities to Fannie Mae and Freddie Mac prior to the global financial crisis that later went sour. (See: Bank of America to pay $9.3 bn to settle mortgage-backed securities claims)