It should feel better when corporate giants agree to billion-dollar settlements to atone for misdeeds that contributed to the 2008 meltdown of the financial markets. But even as Bank of America signed off on paying a record fine of $16.65 billion for its role in the economic collapse, primarily due to the shoddy mortgage practices of Countrywide and Merrill Lynch, the megabank is getting off too easily. The pain the corporation and its shareholders will feel won't nearly compensate for the pain inflicted on the economy and millions of homeowners. At least this time the U.S. Justice Department is leaving the door open to pursuing cases against individual bank officers.
The settlement Bank of America signed last week won't cost the bank as much as it sounds, experts say, because $7 billion of the settlement is in "soft costs" of reducing borrowers' principal. Just $9.65 billion will be in cash. An estimated $1 billion of the settlement is expected to flow to Florida in the form of first and second mortgage principal reduction for 17,000 Floridians. Other money is expected to flow to help communities deal with blight or shore up affordable rental housing stock.
Let's hope this time around Bank of America does a better job than it and four other banks did after signing the 2012 National Mortgage Settlement to provide $25 billion in homeowner assistance. Florida Attorney General Pam Bondi had to threaten legal action in 2013 after her investigators found Bank of America was unduly complicating the loan modification process when homeowners needed relief immediately. The Attorney General's Office will need to play the same watchdog role this time around.
But last week's announcement of the settlement, the third such deal with a major bank, underscored once again how brazen some in the financial industry were in creating the subprime lending crisis. In some cases, Bank of America employees repeatedly altered loan applications dozens of times to "trick" the Federal Housing Administration to insure mortgages. As early as 2005, Countrywide founder Angelo Mozilo suggested his company's pay option loans — which reset interest rates after a few years — weren't performing. Yet for years, his company continued to originate such loans and then sell them to Wall Street.
Now federal officials are reported to be considering a civil case against Mozilo after dropping an earlier criminal investigation. In 2011, Mozilo — with the help of Bank of America — agreed to pay $67.5 million to settle fraud allegations before the federal Securities and Exchange Commission. But by one estimate, Mozilo earned $521.5 million between 2000 and 2008, when he left Countrywide.
U.S. Attorney General Eric Holder needs to follow that investigation, and others, wherever they may lead. Banks finally may be paying up, but their officers also should be punished individually for allowing such recklessness. They should not be allowed to walk away from misdeeds that ultimately led millions to lose their homes.