Bank of America Reportedly Agrees to $17 Billion Settlement

The banking giant reportedly agreed to a deal with the Justice Department for its alleged role in selling toxic mortgages.
6:40 | 08/07/14

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Transcript for Bank of America Reportedly Agrees to $17 Billion Settlement
-- it's Thursday August 7 Wall Street is open for business and today's big number is seventeen. Billion dollars. That's not much Bank of America. Reportedly pay the Justice Department. Clear up allegations that VOA was involved in the fraudulent selling a toxic mortgage backed securities. Hello everyone I'm Michelle Franzen in New York here with the deet tails of this record setting deal. Rick Newman good morning -- I'm so well first -- -- should say the deal is not quite official but seems to be all worked out on paper correct. Yeah that's right and the bank Bank of America -- Justice Department have been haggling for months. Over the amount that Bank of America is likely to pay. To settle these claims they were closer to thirteen billion in the Justice Department said that wasn't enough and the question was well. What the government basically just gonna file a lawsuit against Bank of America which the bank clearly doesn't want there was a couldn't get them to raise there. The number of in terms of the penalties they were willing to pay and it appears that that Bank of America has agreed to pay more in penalties. It could still unravel there are lots and lots -- details here and it's not official yet but it appears to be getting closer to some kind of deal. And initially Bank of America was said to be strenuously. Fighting. The government on making this kind of settlement so what caused VOA to sort of backed down or come to the table. I think probably really don't want -- lawsuit and of course there's a lot of brinkmanship going on behind the scenes that's been the case with other big banks such as JPMorgan Chase. They -- obviously they want the best deal they can get on the other hand the government. Really needs to show that it is that being tough against the banks. Bank of America and it's two to important units Countrywide Financial and Merrill Lynch that it acquired in 2008 they -- really -- two firms that were issuing the huge majority of these so called toxic waste assets mortgage backed securities backed then. And the Justice Department just wants to act like it's like it's actually getting some justice here. This is the last of the big bags to undergo some sort of deal like this and you -- get the feeling that the government wants to have kind of a crescendo. Climax to this whole event and finally say look we we did get some money back for US taxpayers we did. -- have justice served and we -- -- of. Give us a little bit more details behind the scenes how what role the toxic mortgage backed securities had in the 2008 recession. And Vermont senator Bernie Sanders points out in USA today that the Bank of America receive nearly one trillion dollars. In those extremely low interest loans during the federal bail bail out. Right -- -- worth asking what is this all about anyway. Because it's actually but at this point it -- kind of a long time ago. But what went on here is. These were all the mortgages that probably never should have been granted in the first place -- with mortgages given to people who -- had on undocumented income maybe had no income. They were under under -- very poorly they did not account for bad credit risks. And these women did these get -- get bundled into mortgage backed securities that's a fairly routine part of the financial sector nothing is unusual about that the problem was. That nobody correctly labeled. How risky these mortgages -- saw a lot of investors thought they were buying. Top shelf mortgages many of these were and had credit ratings of triple A which is the top rating and they were nowhere near -- -- triple -- so. Somebody along the way misled investors about what was going on in there. And we're talking about. Billions and billions in fact almost one trillion dollars of these mortgage backed securities issued by. Bank of America needs to other entities it now so. When when all those mortgages started to default. This just led to cascading losses and it's why we almost had. Depression and and and a -- a genuine financial crisis in 2008 so all all of these things directly contributed in fact caused. The financial crisis back then. And we know that nobody has really gone to jail no big fish anyway have really going to jail over this of the government's trying to do the next best thing which is. Get these multi billion dollar payments from the backs. And of course as you mentioned Bank of America wouldn't be the first to pay these huge fines related to the 2008 financial crisis the Wall Street Journal tweeted out. A list of who's paid -- take a look at -- those are some pretty big numbers. Yeah and we get a tally here putting aside private -- suits which are billions of dollars more. We're getting close to 100 billion dollars that. Just a handful of big banks will now have paid the government. Paid state governments and paid back to consumers. In fines and and penalties and other things going back and this is really adding up to a lot of money. It's it's being spread across. All -- different states and it's not going to any one single entity but the banks are paying a lot of money here. And so you know we're still slowly recovering from the 2008 recession and no matter how much money these banks and other institutions might have to pay. Have has the government taken enough steps to make sure something like this this financial crisis doesn't happen yeah. Of those things that obviously depends on who you ask. But I think the Obama what the administration would say sure we've done a lot to make sure this doesn't happen again we've passed the Dodd-Frank regulations. Which constrain the types of risks banks can take. Regulators such as a -- reserve. Are really clamping down on banks are getting inside the bank's checking their books making them go back do it over they have to have these wind down plans to make -- to make sure that if they fail. They can be they can go through bankruptcy in an orderly way without requiring more bailouts and you know what usually happens Michelle as -- we have. Problems like this we actually usually do pretty good job of making sure the problem we just had doesn't happen again the real question is what's the next problem going to be. And I we probably don't know the seeds are probably being planted right now somebody's cutting corner somebody is finding clever ways. To take some additional risk that maybe they shouldn't be. This is sort of the history of financial crises is it's always that thing you don't anticipate the causes -- next problem and I think. That's the thing to be paying attention to -- this. Point good point Rick Newman from Yahoo! finance thanks for joining us. Thanks for -- and you of course can keep up with the latest headlines right here on You've been watching the big number I'm Michelle Franzen.

This transcript has been automatically generated and may not be 100% accurate.

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