California pensions, consumers get $800 million from Bank of America case
08/21/2014 8:29 AM
10/07/2014 8:32 PM
California homeowners and pension funds will receive $800 million from Bank of America Corp., the state’s share of a record-breaking settlement over toxic mortgages issued and packaged as investment securities during the housing bubble.
The bank agreed Thursday to pay a nationwide settlement of $16.65 billion, the largest civil settlement by a single company in U.S. history. California officials said borrowers in the state will get $500 million in “consumer relief credits,” including at least $380 million in principal forgiveness.
The state’s two big pension funds will get a total of $300 million to cover their investment losses.
“By holding Bank of America accountable for its actions, it returns hard-earned money our members and employers contributed to the (pension) system,” said Henry Jones, chairman of the investment committee at the California Public Employees’ Retirement System.
CalPERS said it will get as much as $250 million from BofA. David Beltran, a spokesman for California Attorney General Kamala Harris, said the precise split between CalPERS and CalSTRS, the teachers’ retirement fund, is still being calculated.
“Bank of America profited by misleading investors about the risky nature of the mortgage-backed securities it sold. This settlement makes our pension funds whole for the financial losses,” Harris said in a press release.
Her office said BofA borrowers should call a settlement hotline established by the bank if they have any questions. The number is (877) 488-7814.
In addition, bank spokesman Dan Frahm said BofA will begin contacting eligible borrowers in the fourth quarter of this year. Generally, he said eligible borrowers include those who occupy the home in question and are in default or nearly in default. Mortgages serviced by BofA but owned by Freddie Mac or Fannie Mae aren’t part of the settlement.
The BofA case represents the latest multistate settlement made by giant banks over questionable subprime lending tactics that fueled the housing boom and triggered the collapse of the financial markets in 2008. Five of the largest banks agreed in 2012 to pay out more than $40 billion in the form of principal reduction and other relief to borrowers across the country, with about half the money flowing to California.
For California’s pension funds, the BofA case is the third-largest settlement in less than a year as they seek to recoup losses suffered when they invested in mortgage-backed securities tied to subprime loans.
A month ago, Citigroup Inc. agreed to pay nearly $200 million to the two pension funds. Last November, the two funds collected $300 million from J.P. Morgan Chase & Co.
Editor's Choice Videos
Join the Discussion
The Sacramento Bee is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.