The State of Delaware will receive $45 million following the settlement of allegations that Bank of America misled investors about the risks involved in mortgage-backed securities.
The money owed to the state is just a small portion of the $16.7 billion settlement reached between the bank, the U.S. Dept. of Justice and five other states, which include California, Illinois, Kentucky, Maryland and New York.
The allegations surround the manner in which Bank of America bundled and sold mortgages to investors. The investors, comprised of pension and mutual funds, were told the bundled mortgages were low-risk when the risk was actually much more significant.
The resulting losses were disastrous for the economy, according to Delaware Attorney General Beau Biden’s office.
“Our financial system only works when everyone plays by the rules, and there must be accountability when those rules are broken,” Biden said.
The settlement money will be used in three different ways. Biden said $31.6 million will be used to remediate the damage caused by the housing crisis to Delaware communities. Bank of America will pay $13.4 million to government entities for losses incurred from investments that were incorrectly labeled as low-risk.
The bank also agreed to help homeowners by modifying mortgage terms and even forgiving second mortgages. Under terms of the settlement, Bank of America must provide at least $150 million in assistance to residents in Delaware, Maryland and Kentucky.
“The mortgage crisis wrecked our economy and devastated families and neighborhoods throughout Delaware and the nation,” Biden said. “The funds we have secured in these settlements are being put to work helping thousands of Delaware families avoid foreclosure.”
The $45 million Bank of America settlement brings the total amount the state has received in mortgage-related settlements to $180 million.
Last month, Citigroup agreed to pay the state $17 million in a settlement agreement. In November, JPMorgan Chase agreed to pay $20 million in a similar deal.
Along with more than $75 million in financial aid, the state also received $11.7 million for Delaware residents through the National Mortgage Settlement, a deal reached with the nation’s five largest mortgage-servicing banks.