Related to, but separate from the five-bank agreement that’s all over the news, Bank of America is going to pay a $1 billion penalty for defrauding borrowers and the Federal Housing Administration.
Through its Countrywide subsidiary (acquired in 2008), Bank of America “knowingly made loans insured by the Federal Housing Administration (FHA) to unqualified home buyers,” according to a government statement. That cost the FHA — and thus taxpayers — “hundreds of millions of dollars in damages,” and that doesn’t include the bank’s defrauding the FHA’s insurance fund.
Half of the money — $500 million — goes right to the FHA. The other half will be put into a loan modification program for borrowers with underwater mortgages. B of A will be required to offer any eligible borrower a loan modification. And if, after three years, it hasn’t spent that full $500 million, the remainder goes straight to Uncle Sam.