Illinois will receive $300 million in Bank of America settlement

Bank of America and the Justice Department have reached a record settlement of almost $17 billion to end a long-running probe into the marketing and sale of toxic mortgage securities by the bank and particularly its Countrywide Financial and Merrill Lynch units.

For Illinois, the $16.65 billion national settlement means a cash payment of $200 million for the state's pension system, making it whole for losses sustained as a result of the risky investments. The deal also includes $100 million in consumer relief for struggling Illinois homeowners, according to the Illinois Attorney General's office.

"This settlement resolves the fourth enforcement action I have brought against Bank of America to fight the widespread fraud that was at the root cause of the economic crisis," Madigan said. "Bank of America, and in particular Countrywide, were major players in virtually every aspect of the market that caused the crisis, from shoddy loan originations and discriminatory lending to African Americans and Latinos to fraudulent marketing of mortgage-backed securities."

The settlement, announced Thursday morning, eclipses what had been a record sum set last year that resolved similar allegations made by federal and state authorities against JPMorgan Chase.

Unlike earlier settlements resulting from the nation's housing meltdown that were designed to help consumers who were wrongly sold mortgages they could not afford, the more recent pacts center on allegations that lenders violated federal and state laws on their marketing and sale to investors of risky mortgage bonds tied to those shoddily made home loans.

Bank of America acquired Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009.

"Bank of America has acknowledged that, in the years leading up to the financial crisis that devastated our economy in 2008, it, Merrill Lynch, and Countrywide sold billions of dollars of RMBS backed by toxic loans whose quality, and level of risk, they knowingly misrepresented to investors and the U.S. government," U.S. Attorney General Eric Holder said in prepared remarks that were to be delivered at a morning press conference.

Illinois Attorney General Lisa Madigan in 2010 filed a predatory lending lawsuit against the lender, alleging that the company steered minority borrowers into subprime loans between 2004 and 2008. In late 2011, she and federal officials announced a $335 million national settlement with the bank over those charges. 

The Illinois pension entities that will receive the payments under Thursday's deal are the Illinois Teachers Retirement System, the State Universities Retirement System and the Illinois State Board of Investment, which oversees pension plans for state employees, the General Assembly and judges.

The consumer relief is not cash but rather credit that Bank of America will receive for arranging mortgage loan modifications and refinancings, among other activities.

Holder noted that because Congress failed to extend the Mortgage Forgiveness Debt Relief Act of 2007, some homeowners who would benefit from the settlement, in the way of principal writedowns or short sales, would see a greater tax liability from it.

While calling on legislators to extend the act, which expired in December, he also said that Bank of America must pay more than $490 million to defray some of the liability, and the settlement requires the bank to notify all consumers of the potential tax liability.

Last November, JPMorgan Chase and the department inked a $13 billion national settlement, which included a $100 million payment for Illinois' various pension systems but no consumer relief.

And just last month, Citigroup, Inc., agreed to pay $7 billion nationally, including $84 million to Illinois. About half of that sum was dedicated to consumer relief.

Earlier this summer, it was reported that Holder declined a request to meet with Bank of America CEO Brian Moynihan to draft a settlement, saying that the two sides were still too far apart for a meeting to be productive.

Holder noted that the settlement does not preclude the possibility of criminal charges against the bank or its employees.