One of the largest U.S. banks, the Bank of America, is paying a record fine of nearly $17 billion because of bad housing loans it sold to investors, helping trigger the world recession.
The biggest settlement ever between the U.S. government and a private corporation was announced Thursday by U.S. Attorney General Eric Holder, who said Bank of America engaged in "pervasive schemes" to defraud investors buying the bad loans.
"These loans contained material underwriting defects,” Holder said. “They were secured by properties with inflated appraisals."
The Bank of America penalty follows a combined $20 billion in fines already imposed on two other large banks, JPMorgan Chase and Citigroup, for their roles in selling weak home loans to investors ahead of the recession in 2008 and 2009.
With the U.S. economy, the world's largest, weakening at a rapid pace at the time, millions of homeowners defaulted on their loans, making the mortgage securities the banks sold to investors worthless. Investment and lending woes in the United States set off the world-wide recession. Some countries, chiefly in Europe, still are struggling to recover.
Negotiating for years
Bank of America has been negotiating with the government for several years about investments that were largely sold by two financial institutions it acquired, the Merrill Lynch stock brokerage and home mortgage lender Countrywide Financial.
The fine imposed on Bank of America is about equal to its total profit for the last three years.