Bank of America Settles Faulty Mortgage Lawsuit for $16.65 billion

Bank of America announced Thursday that it has agreed to pay $16.65 billion in penalties to the U.S. Department of Justice after it was found guilty of selling shoddy mortgage loans that eventually led to the economic downfall in 2008.

BofA will reportedly pay a fine of $9.65 billion in cash of which $5.02 billion will go towards civil monetary penalties and $4.63 billion will be dedicated towards compensatory remediation payments.

The bank will also pay $7 billion towards consumer relief that includes neighborhood development and forgiving home loans consumers took during that time.

"We believe this settlement, which resolves significant remaining mortgage-related exposures, is in the best interests of our shareholders, and allows us to continue to focus on the future," Chief Executive Officer Brian Moynihan said in a statement.

News of the agreement comes after several broken negotiations. The Bank of America had offered to settle for $13 billion earlier but the justice department wouldn't settle for anything less than the $17 billion.

In fact, the department threatened to sue the bank if they didn't raise their settlement offer and after much resistance, the financial institution caved.

BofA's penalty amount is higher than the $13 billion fine J.P Morgan Chase paid in the same faulty-mortgage case. In fact, this is the highest amount the DoJ has collected through its investigations.

Experts predicted that the settlement would prove positive for the bank.

"Despite the eye-popping penalty, the deal would bring a measure of closure to the bank, which has already paid tens of billions of dollars to settle lawsuits by private investors and regulators over its mortgage operations," Ben Protess and Michael Corkery of Dealbook wrote. 

"The deal, the bank's largest remaining legal issue from the financial crisis, would, in turn, accelerate Bank of America's effort to return to the business of being a bank," they add.

And as predicted, shares of BofA went up 0.15 percent in opening trade Friday.

News of BofA's settlement comes just after the justice department settled with Citigroup on the same faulty-mortgage selling issue. The DoJ held several other financial institutions including J.P Morgan Chase and Goldman Sacchs on charges of deceiving investors.

More recently, it was revealed that the DoJ was using all the money from the J.P Morgan Chase settlement to speed up other bank cases. The bank paid $13 million in fines to the department.