WASHINGTON — Being last certainly is not least.
The last of the top three banks to get hit with a massive Department of Justice settlement, Bank of America must fork over a record amount to resolve a host of mortgage fraud-related claims stemming from the crisis.
The $16.6 billion deal announced Thursday — exceeding both JPMorgan Chase's 13 billion settlement and Citigroup's $7 billion accord — addresses issues related not only to the bank itself but also to mortgage-related problems at Countrywide and Merrill Lynch before B of A acquired them as subsidiaries.
But the settlement still leaves many questions, including what B of A can write off from the deal in tax deductions, how policymakers address the tax liability of consumers getting relief and which institutions DOJ may target next.
Here are four takeaways from the record settlement:
There is more to the $16 billion-plus number than first appears.
The B of A deal may be the largest settlement of its kind, but that does not mean that the bank is simply cutting the government a $16.65 billion check.
The settlement does include a $5 billion penalty paid to the federal government to settle claims under the Financial Institutions Reform, Recovery and Enforcement Act. The law — passed after the savings and loan crisis — allows DOJ to go after banks with civil claims rather than just criminal prosecution.
Another nearly $5 billion will address a series of other federal and state claims, including $1.03 billion paid to the Federal Deposit Insurance Corp. related to its receiverships of various failed banks.
But the remaining $7 billion are non-cash rewards satisfied through different forms of consumer relief, including principal reduction loan modifications, new loans to borrowers struggling to get credit and money for communities trying to recover from the crisis.
"I want to be very clear: the size and scope of this multibillion-dollar agreement go far beyond the 'cost of doing business,'" Attorney General Eric Holder said in remarks Thursday, adding that the pact "does not preclude any criminal charges against the bank or its employees."
But some commentators are already focusing on what B of A is not paying, since the bank is expected to be able to deduct a large portion of the cash payment from its taxes.
Some noted the deal omitted language present in other DOJ settlements trying to limit the size of the tax write-off, and therefore could allow B of A to seek a bigger deduction.
"Today's settlement does a strange thing — instead of protecting taxpayers by specifying the tax status, it makes the extraordinary decision to not specify the tax status," said Phineas Baxandall, senior analyst for tax and budget policy at U.S. PIRG.
The pact shines a spotlight on growing mortgage tax relief issue.
The B of A settlement is bringing sudden new attention to an unsettled legislative issue: tax liability for consumers getting mortgage debt relief.
While B of A can offset some of its own costs of the accord by deducting part of the settlement from its taxes, many homeowners due for a piece of the payout could be looking at a tax hit.
The issue is significant enough that Holder highlighted it in remarks on the B of A deal. To address potential consumer penalty, the settlement includes $490 million B of A is paying to offset some of the liability. But Holder said "that is not enough."
Congress had allowed homeowners to avoid taxes on mortgage debt relief such as short sales and principal forgiveness. But the Mortgage Forgiveness Debt Relief Act expired at the beginning of this year, meaning consumers benefiting from the B of A pact and other settlements are exposed to liability.
Holder called for a quick extension of the law.
"Until Congress acts, the hundreds of thousands of consumers we have sought to help through our settlements with JP Morgan Chase, Citigroup, and now Bank of America may see a significant tax bill just as they are beginning to see the light at the end of a dark financial tunnel," Holder said.
Some observers said the potential tax liability may cause consumers qualifying for relief under the B of A deal simply to decline the offer.
"You're not going to have folks signing up willingly for the principal reduction if there's a sizeable tax consequence," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading.
A collection of other tax-related proposals on Capitol Hill have failed to advance as the two parties make little progress in breaking a general legislative logjam. But Holder's comments could give the mortgage debt relief provision new life, Boltansky said.
"There's been very little focus on it on Capitol Hill because it's been caught up in the broader legislative quagmire. Seeing Holder mention it was the first actual mention that I've heard in quite some time," he said. "By singling it out, Holder made the point that the composition of these settlements almost forces us to think about this particular tax credit as a standalone."
How much consumer relief will result from the settlement is unclear.
Justice Department officials were quick to tout the $7 billion for consumers. The settlement "helps to rectify the harm caused by Bank of America's conduct through a $7 billion consumer relief package that could benefit hundreds of thousands of Americans still struggling to pull themselves out from under the weight of the financial crisis," said Associate Attorney General Tony West.
But some argued that much of that relief would have been undertaken anyway, independent of the settlement.
In earlier settlements with other banks, commentators noted that institutions were able to credit activities done in the normal course of business — such as writing off certain mortgages or making new loans — toward satisfying a portion of their deals.
"Too much of this so-called consumer relief is a mirage," said Dennis Kelleher, president and chief executive of the advocacy group Better Markets. "These settlements are being done so that they look bigger and more meaningful than they are — that serves both DOJ's bragging rights and the Wall Street banks' interests."
Others said the B of A deal reinforces a need for more transparency about how the settlement amounts are calculated, and how the government's agreements with banks are administered after being inked.
"While we see the actual terms of these settlements, we don't see anything on the performance. I couldn't tell you how many people have been helped who wouldn't have been helped under normal business operations," said Boltansky. "After the headline, we see very, very little."
Still, the DOJ is likely far from done pursuing claims from the crisis.
Although the B of A deal wraps up a series of government claims against the three biggest banks, the Justice Department appears nowhere near finished in using its civil litigation powers on the industry.
The government has not been bashful about exercising its FIRREA authority. The 1980s-era law allowed the DOJ to bring civil claims against banks with a lower standard of proof than criminal cases, and experts say officials will likely apply it to more smaller institutions accused of mortgage-related abuses.
"The FIRREA statute isn't going anywhere. We're just beginning to see what a powerful weapon FIRREA provides the Department of Justice," said Brandon Garrett, law professor at the University of Virginia.
Boltansky said DOJ could consider actions against superregional and regional banks.
"Now that FIRREA has been proven as a viable legal mechanism to secure recoveries, there's little reason not to expect future settlements," he said. "DOJ is likely to keep going down the ladder to the other banks."