$864 Million Bank of America Fine a Fraction of Damage Done

Today, November 9, 2013, reported on Reuters, the U.S. government urged that Bank of America pay $863.6 million in damages after a federal jury found Bank of America liable for fraud over defective mortgages sold by its Countrywide unit. The case centered on a mortgage lending process at Countrywide, which Bank of America bought in July 2008, known as the "High Speed Swim Lane," or alternatively "HSSL" or "Hustle." Government prosecutors said Countrywide's program emphasized and rewarded employees for the quantity rather than the quality of loans produced, and eliminated checkpoints designed to ensure that loans were sound. The Hustle case, like some other financial crisis cases recently pursued by the government, was brought under the Financial Institutions Reform, Recovery, and Enforcement Act, a law passed after the 1980s savings-and-loan scandals.

The lawsuit is the first government case to go to trial over the faulty mortgage practices that led to the 2008 financial crisis.

A new wave of claims against financial institutions and rating agencies could breathe new life into an old law. Federal prosecutors have turned to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). FIRREA is a civil anti-fraud law passed in the wake of the savings and loan crisis.

FIRREA was passed, in part, to “enhance the regulatory and enforcement powers of Federal financial institutions’ regulatory agencies.” The obvious precedent event was the Savings & Loan Crisis that caused billions of dollars in losses to investors and federally insured deposit funds. Read more about FIRREA

Net income is what remains of a company's revenue after subtracting all costs. It is also referred to as net profit, earnings, or the bottom line. Net Income that is not paid out in dividends is added to retained earnings. On October 16, 2013 Bank of America Corporation reported net income rose to $2.5 billion in the third quarter of 2013 from $340 million in the year-ago quarter.

I admit that $864 million sounds like a lot of money, a whopping fine. But when you do the math, its not much. The proposed fine resulting from the FIRREA based law suit I mentioned, represents only .345% of Bank of America's most recent quarterly net. One quarter, Q3 only. Less than 1% of one quarter's net. How bad is that slap on the hand going to hurt?

According to RealtyTrac.com - November 2013.

Although many media types continually speak of the foreclosure crisis, and the world financial crisis in the past tense. We are not past it. The nightmare continues. There are currently 1,254,701 properties in U.S. that are in some stage of foreclosure. In September, the number of properties that received a foreclosure filing in U.S. was 2% higher than the previous month.

According to an article published in Huffington Post in May 2013, Americans lost $192.6 billion in wealth, or an average of $1,700 per household, in 2012 due to foreclosures. The article also stated that the U.S. could lose $221 billion more within the next year if officials don't come to the aid of millions of borrowers who owe more on their homes than they're actually worth.

And in the Fall 2012 issue of "Democracy, A Journal of Ideas", declared that wealth stripping has increased during the economic crisis. Since the onset of the Great Recession, Americans have lost $7 trillion in equity in their homes. The Federal Reserve estimates the median American family has lost nearly two decades of wealth, or almost 40 percent of their assets. In a separate report, the Pew Research Center estimates that Latinos, Asians, and African Americans have experienced wealth losses of 66 percent, 54 percent, and 53 percent respectively, compared to 13 percent for whites. These losses are largely due to home foreclosures and lost equity.

So, no, less than 1% of one quarter earnings as a fine for Bank of America is not nearly enough to put a dent in the damage done.