WASHINGTON (AP) – Bank of America’s purchase of Countrywide Financial has cost it tens of billions of dollars over the past six years. An expected $17 billion settlement with the Justice Departm ent will increase that toll, but not by a full $17 billion.
That sensational amount, which would be the largest mortgage settlement to date with the department, is expected to include $7 billion in consumer aid. But as with previous settlements with JPMorgan Chase and Citigroup, the true cost of that relief is likely to be a good deal less.
The expected Bank of America settlement will resolve allegations that the bank and companies it later bought misrepresented the quality of loans they sold to investors. Most of the problem loans were sold by Countrywide Financial and Merrill Lynch before Bank of America bought them during the 2008 financial crisis. To settle the government’s claims against the three companies, Bank of America will pay $9.65 billion in cash in addition to providing the $7 billion of consumer aid, according to officials directly familiar with the matter who spoke on condition of anonymity because the deal wasn’t scheduled to be announced until Thursday at the earliest.
Bank of America declined to comment on any settlement-related topics Wednesday.
Whether cash payments are structured as penalties or legal settlements can determine whether targeted companies can declare them as tax-deductible business expenses. Also, consumer relief is an amorphous cost category: If Bank of America’s deal resembles the department’s previous settlements with JPMorgan and Citigroup, that part could be less costly to the company than the huge figures suggest.