$1 billion False Claims Settlement Against Bank of America

The government has been investigating the lending practices of Bank of America since 2009. The bank, and Countrywide Financial Corporation which it acquired in 2008, had knowingly been giving FHA-insured loans out to unqualified home-buyers. This has resulted in hundreds of millions of dollars in damages to the FHA. The investigation also looked into whether or not BofA and Countrywide had been defrauding the FHA insurance fund with mortgage loans that were based on inflated appraisals.

Finally a settlement has been reached. Bank of America will have to pay $1 billion to correct this wrongdoing. They must pay $500 million upfront to provide a recovery fund for the damages done to the FHA. The second $500 million will be used to fund a loan modification program for Countrywide borrowers with underwater mortgages. Bank of America is expected to modify the loans of anyone who is eligible and who accepts this offer. The bank has 3 years to apply the full $500 million toward this relief effort, and if they fail to meet this obligation, any remainder must be paid directly to the U.S. government.

This goes down as the largest ever False Claims Act settlement relating to mortgage fraud. Because they abused the FHA, Bank of America, Countrywide Financial and their subsidiaries are mainly to blame for the country's financial crisis. It goes to show that lenders need to be careful about following the FHA's rules, or else they too will face serious financial consequences for any violations.

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