Bank of America Corp (NYSE:BAC) has agreed to a record $17 billion settlement with the US Department of Justice over faulty mortgage derivatives products that led to the 2008 derivatives crash.

Bank Of America BAC

Bank of America settlement follows Citigroup and JPMorgan

The reported deal includes $10 billion in fines and $7 billion in consumer relief.  The settlement follows a $7 billion settlement with Citigroup Inc (NYSE:C) and a $13 billion settlement with JPMorgan Chase & Co. (NYSE:JPM).

Unlike these banks, however, Bank of America Corp (NYSE:BAC) was a victim of circumstance to a certain degree.

When the 2008 derivatives crash was in full swing – and word was racing around financial circles that what was considered frequently opaque derivatives products containing toxic waste were being exposed as such – investors were fleeing financial institutions exposed to this practice.

At the time of the 2008 crisis Countrywide, who initiated many of the loans and sold them to large banks for packaging, along with loan packager Merrill Lynch, were at the center of the issue.  Their firms teetering on the verge of insolvency, the US government requested that Bank of America Corp (NYSE:BAC) purchase these troubled firms to the benefit of market stability.  Bank of America did so and is now being punished with a fine significantly higher than those banks deeply involved in creating the intentionally opaque investment products.

Bank of America argues not to be held liable for the subprime mortgages

Bank of America reasoned that it shouldn’t be held liable for the subprime mortgages issued by Countrywide, the largest contributor, and Merrill Lynch, combined totaled $965 billion in mortgage-backed securities from 2004 to 2008, according to a press report.

Terms of the deal specify that Bank of America “must acknowledge making serious misrepresentations about the quality of its residential mortgage-backed securities issued” by itself and by Countrywide Financial and Merrill Lynch, the report noted. These “misrepresentations have also been called “fraud” other reports.  In related news, individual executives at mortgage originator Countrywide are likely to be charged in a civil suit, as reported in ValueWalk.  Executives at Merrill Lynch have not faced such individual charges, nor have any individual bank executives.

Last year the Securities and Exchange Commission charged Bank of America Corp (NYSE:BAC) in a federal lawsuit and two subsidiaries with defrauding investors in an offering of residential mortgage-backed securities by failing to disclose key risks and misrepresenting facts about the underlying mortgages.  DoJ filed a civil action against Bank of America Corp (NYSE:BAC) at the same time alleging violations of the Financial Institutions Reform, Recovery, and Enforcement Act.