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Bank of America agrees to $8.5 billion mortgage settlement

Bank of America customers use an ATM.

UPDATED INTERVIEW

STEVE CHIOTAKIS: Bank of America said today it'll shell out $8.5 billion to settle claims by some investors that the bank improperly managed their money in mortgage-backed securities. It's the largest big bank settlement to date in the wake of the housing bust.

Marketplace's Nancy Marshall Genzer is with us live with the latest on that. Good morning Nancy.

NANCY MARSHALL GENZER: Good morning Steve.

CHIOTAKIS: What does this settlement really mean for Bank of America?

MARSHALL GENZER: Well Steve the bank has a very large monkey off its back. Those poor-quality loans were made by subprime lender Countrywide. Bank of America bought Countrywide in 2008. The investors lost money when the loans went sour during the housing bust.

Banking consultant Bert Ely says it was best for Bank of America to just cut its losses.

BERT ELY: Because the uncertainty over how much the settlement is going to cost depresses the stock price. It also has morale impacts on bank employees. It's a management distraction. So, at some point in time, it's better to just settle and move on.

Now Steve Wall Street appears to agree. There are signs this morning that investors will bid up Bank of America's stock when the market opens. The bank says it expects to lose $3 billion and change during the second quarter. But investors see that as paving the way for profits in 2012.

CHIOTAKIS: What about the other banks Nancy -- and the banking industry in general. What's the bigger picture here?

MARSHALL GENZER: Yeah, I asked Bert Ely about that. And he said he sees the Bank of America settlement as setting a precedent.

ELY: This is somewhat breaking the logjam and 2011 may be the year in which all the large banks decide let's just get this behind it -- it kind of cleans the decks.

And Ely expects other banks to start to settle now, too with that same thinking -- get their losses behind them this year, so maybe they can make money next year.

CHIOTAKIS: Marketplace's Nancy Marshall Genzer. Nancy, thank you.

MARSHALL GENZER: You're welcome.



ORIGINAL REPORT

JEREMY HOBSON: Bank of America has just announced a deal to settle claims from investors who lost money on mortgage investments that went bad. It'll pay investors $8.5 billion -- the largest big bank settlement to date when it comes to the housing bust.

Marketplace's Nancy Marshall Genzer reports.


NANCY MARSHALL GENZER: Investors who bought securities made up of mortgages that went sour in the housing bust are now looking to get their money back. Today's deal could be the first of many.

Banking consultant Bert Ely:

BERT ELY: This is somewhat breaking the logjam and 2011 may be the year in which all the large banks decide let's just get this behind it -- it kind of cleans the decks.

In bank of America's case, the bad loans came from the subprime lender Countrywide. Bank of America acquired Countrywide in 2008. Investors who bought securities made up of Countrywide loans say the loans didn't live up to promises about their quality. And they say Countrywide didn't keep accurate files about them. The Bank of America settlement could wipe out the bank's profits for part of this year.

Ely says it's unclear whether this will kick start new mortgage lending, but it could pave the way for Bank of America to make a profit in 2012.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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