AFP theWest.com.au Updated 08 January 2013
WASHINGTON (AFP) - Top US banks agreed Monday to pay out $20 billion in fines and compensation as regulators, borrowers and investors extract more payback over the housing and financial crisis.
Bank of America endured the most punishment, mainly due to its 2008 takeover of home lender Countrywide Financial, when it agreed to pay mortgage finance giant Fannie Mae $11.6 billion to settle claims that it sold Fannie hundreds of billions of dollars' worth of dud home loans.
Many of those loans, packed into securities, plunged into default after the housing bubble crashed in 2006, destroying the value of Fannie's investments and forcing it into a government bailout.
Meanwhile 10 banks, including Bank of America, agreed Monday with regulators to shell out $8.5 billion in cash and assistance to homeowners to settle accusations that they had forced millions into foreclosure while ignoring borrowers' attempts to make good on their mortgages.
The two settlements were just the newest in the ongoing shakeout from the financial crisis, rooted in housing market implosion and the subsequent tanking of the multitrillion-dollar mortgage-backed securities market.
The shakeout has left the banks in the sights of regulators, of powerful state-controlled Fannie Mae, equities investors, troubled homeowners and their fellow banks.
Tens of billions in fines and compensation have been assessed, with much more to come.
In the largest so far, in February 2012 five leading banks were ordered to pay more than $25 billion over foreclosure abuse in a settlement with 49 states.
Those fines include both direct payments to homeowners and debt forgiveness for more than one million homeowners.
In August Citigroup agreed to pay $590 million to settle a class-action suit by investors who accused the bank of hiding its mortgage-security losses, eventually delivering the investors huge losses on their shares.
In November JPMorgan Chase and Credit Suisse settled for $417 million with the Securities and Exchange Commission over their sales of mortgage securities to investors.
Bank of America has suffered the most, mainly due to its acquisition of Countrywide, which quickly grew into the country's largest mortgage issuer in the 2000s by granting millions of financially unsupportable mortgages, which it sold on to investors.
In 2011 the bank agreed to pay $8.5 billion to private investors in mortgage securities.
In Monday's settlements, Bank of America will pay $3.55 billion in cash to Fannie Mae, buy back $6.75 billion in residential mortgage loans, and pay $1.3 billion to address mortgage servicing problems.
The 10 banks, in their deal with the Federal Reserve and the Office of the Comptroller of the Currency, will pay borrowers $3.3 billion in cash and $5.2 billion in mortgage assistance to settle claims.
But there is more to come. Four other banks which were investigated did not sign on to the Federal Reserve-OCC deal, including giants Ally Financial and HSBC.
Several other banks being probed also were not part of last year's 49-state deal, meaning they still face a threat.
Around a dozen banks and brokers have been sued by the National Credit Union Administration after several thrifts collapsed when the value of mortgage securities they bought were wiped out.
The Federal Housing Finance Agency has sued 17 banks for losses Fannie and its sister Freddie Mac incurred on $200 billion in mortgage-backed securities.
New York State sued individual banks late last year: JPMorgan Chase over $22.5 billion in mortgage security losses and Credit Suisse over $11.2 billion in losses.
Bank of America may have resolved its biggest Countrywide legacy headache Monday, but it remains a large target.
In November, the Justice Department filed a $1 billion-plus lawsuit against it, again, for Countrywide's allegedly having sold defective, high-risk mortgages to Fannie and Freddie in what Preet Bahara, the US attorney in New York City, called a "spectacularly brazen" operation.
"Countrywide and Bank of America made disastrously bad loans and stuck taxpayers with the bill," he said.