The settlement, which is still not final, could be the largest punitive penalty on seen by any bank, larger than the proposed $13 billion settlement reported a few weeks ago. Prior to this deal, the $13 billion settlement between the Justice Department and J.P. Morgan Chase, reached last November over similar allegations, was the largest.
If finalized, Bank of America would pay the Justice Department, states and other government bodies $9 billion, while the remainder of the money will be used reduce mortgage balances for struggling homeowners.
Talks almost broke down last month when Bank of America agreed to pay only $3 billion in cash, which was squarely rejected by the Justice Department.
According to a person close to the matter, the two sides were able to find common ground after Bank of America CEO Brian Moynihan had a phone call with Attorney General Eric Holder last Thursday. Holder is reported to have told Moynihan that if the two sides weren't able to reach a deal, the Justice Department would file a lawsuit the next day
The Justice Department had previously rejected a request by Moynihan to speak personally with Holder.
Bank of America is paying the penalty because of securities packaged by them in the run up to 2008, but also for mortgages sold by Countrywide and Merrill Lynch. The two companies were acquired by Bank of America after the financial crisis, with Countrywide having sold nearly three quarters of the combined securities issued by the three financial entities during that period.
Bank of America has held that it should not be penalized for mortgages that Countrywide and Merrill Lynch sold before it agreed to buy the firms in 2008. The bank has held that it was pressured by federal regulators to acquire Merrill Lynch in order to prevent the latter's collapse.
While the two sides are still hashing out the details of the deal, there is a chance it could fall apart, with one person saying that an announcement isn't expected this week.