The Justice Department, building on a multibillion-dollar mortgage settlement with JPMorgan Chase last year, is aiming for a deal with Bank of America.
In a move that raised the stakes for the government’s crackdown on banks that sold troubled mortgage investments during the financial crisis, the Justice Department made Bank of America an opening settlement offer of roughly $20 billion several weeks ago, according to people briefed on the matter.
But that amount is a somewhat inflated starting point for negotiations, and Bank of America has not yet made a counteroffer, according to the people who were not authorized to speak publicly.
The initial offer, the people said, included money earmarked for a settlement with the Federal Housing Finance Authority, a regulatory agency. After the Justice Department made that offer, Bank of America reached a separate $6.3 billion cash deal with the regulator. Because of this, the Justice Department’s remaining request has shrunk significantly.
By one measure, Bank of America will ultimately pay about $16 billion to settle every investigation into its sale of mortgage securities before the 2008 financial crisis. That estimate, widely circulated among bank executives and lawyers, would include the $6.3 billion pact already reached with the housing regulator. The remainder would cover penalties paid to the Justice Department, as well as to state and federal regulators, and a few billion dollars aimed at providing relief to struggling homeowners.
A Justice Department spokeswoman declined to comment, as did a spokesman for Bank of America. Bloomberg News reported certain details of the talks earlier.
The settlement negotiations with Bank of America are playing out as the government is under pressure to extract eye-popping penalties from Wall Street for its role in the financial crisis. For the Justice Department, blamed for its slow response to the financial crisis, the latest civil investigations into JPMorgan and Bank of America suggest that the Obama administration’s crackdown on Wall Street is gaining momentum.
At the center of the Justice Department’s investigations is Wall Street’s mortgage machine, which churned out billions of dollars in securities from 2005 to 2008. Many of those investments later imploded.
The JPMorgan case, announced in November, offered a template for future settlements. At the time, Tony West, the No. 3 Justice Department official, said that other cases could follow that model.