CHICAGO – Illinois will receive $300 million of a national $16.65 billion settlement between the government and Bank of America over the bank’s role in the sale of mortgage-backed securities in the run-up to the 2008 financial crisis.
About $200 million of Illinois’ portion will go toward covering losses state pension systems incurred by investing in mortgaged-backed securities. The remaining $100 million will go toward consumer relief, including blight reduction and helping those who took out “shoddy” Bank of America mortgages, state Attorney General Lisa Madigan said.
“We are holding these banks accountable for what they did to our economy and that is significant. It sends a very strong signal,” she told reporters in Chicago. “We will continue to be vigilant. We will continue to clean up this mess.”
The deal requires the nation’s second-largest bank to pay a $5 billion cash penalty, another $4.6 billion in remediation payments and provide about $7 billion in relief to struggling homeowners. It is by far the largest deal the U.S. Justice Department has reached with a bank stemming from the 2008 financial crisis.
Madigan’s office found that from 2006 to 2008, Bank of America didn’t disclose the risk of residential mortgage-backed securities to Illinois’ pensions systems and misled the systems when they invested in the mortgaged-backed securities market.
The settlement requires the bank to pay $154.2 million to the Illinois Teachers Retirement System, $2.6 million to the State Universities Retirement System and $43.2 million to the Illinois State Board of Investment, which oversees retirement funds for state employees, lawmakers and judges.
Illinois has the nation’s worst-funded public-employee pension systems with roughly $100 billion in unfunded liability.
However, a spokesman for the largest of Illinois’ five pension funds said it wouldn’t have much impact overall.
“We’re always pleased with these kinds of settlements, but the size of the problem is much larger,” TRS spokesman Dave Urbanek said. He added that it was difficult to tell if the settlement would affect future investments as many external money managers make decisions on the roughly $45 billion the system invests.
Madigan’s office said the number of Illinois homeowners who would benefit will depend on how the money is apportioned. For example, it could be distributed through grants or principal loan reductions. An independent monitor will oversee the relief distribution, according to the terms of the settlement.
U.S. Attorney General Eric Holder said Bank of America and its Countrywide and Merrill Lynch subsidiaries had “engaged in pervasive schemes to defraud financial institutions and other investors” by misrepresenting the soundness of mortgage-backed securities. The penalties, Holder said, go “far beyond the cost of doing business.”
The government said the settlement, the largest reached with a single entity, wouldn’t release individuals from civil charges or absolve Bank of America, its current or former subsidiaries and affiliates, or any individuals from potential criminal prosecution.