Bank of America (BAC) is starting to deliver on its $7 billion consumer-relief obligations required under its Aug. 20 2014 settlement with the U.S. Department of Justice and six states.
Bank of America failed to make accurate and complete disclosure to investors and its illegal conduct kept investors in the dark,” Rhea Kemble Dignam, regional director of the SEC’s Atlanta office, said at the time of the settlement. “Requiring an admission of wrongdoing as part of Bank of America’s agreement to resolve the SEC charges filed today provides an additional level of accountability for its violation of the federal securities laws.”
The settlement went on record as the biggest settlement to date, surpassing similar settlements by other banks like JPMorgan Chase (JPM) and Citigroup (C), which reached $13 billion and $7 billion settlements, respectively.
Eric Green, independent monitor of the agreement, stated in the first of his required reports on the bank’s consumer relief activities that the bank claimed a credit of $8,948,684 for the initial batch of 100 first-lien mortgages. This group of 100 mortgages received various modifications – including forgiveness of principal, reduction of interest rates, and bringing delinquent loans current without penalt. The nearly $9 million in credit is how much those modifications cost the bank.
"Examination of the first batch of 100 loans amounts to a test drive, assessing Bank of America's plan for delivering much-needed assistance to homeowners and its methodology for calculating how the assistance qualifies for credit under the settlement agreement," Green said.
"The bank is extending relief to tens of thousands of homeowners, and in coming months we should get a clearer picture of how quickly the bank has delivered on its consumer relief obligations, how much of what kind of relief has been delivered, and where relief has been distributed," he said.
He did note that the first 100 loan modifications are being used mostly to test monitoring standards and procedures but are too small a sample from which to draw all-encompassing conclusions about the consumer relief Bank of America will deliver in the future.
The loan modifications – including forgiveness of principal, reduction of interest rates, and bringing delinquent loans current without penalty – are meant to help struggling homeowners by making their mortgages more affordable.
Bank of America is required to provide $7 billion of consumer relief by Aug. 31, 2018. The categories of relief include not only loan modifications but new loans to low- and moderate-income borrowers, donations toward community reinvestment and neighborhood stabilization and support for affordable low-income rental housing.
"For many, if not most, Americans, family and the family home are core values, at the center of the lives they hope to live. Owning a family home is the dream. Losing that home is the nightmare," Professor Green said. "This settlement agreement acknowledges that the bank has committed to do its part to help repair the dream and avert the nightmare for those still in their homes but struggling with their mortgage payments."