CHICAGO (CBS) — Illinois is set to receive a $300 million share of a record $16.7 billion nationwide settlement with Bank of America, over allegations of financial misconduct that helped lead to the 2008 financial crisis.
WBBM Newsradio’s John Cody reports most of the state’s share of the settlement will go to cover losses state pension systems suffered by investing in mortgage-backed securities.
Illinois Attorney General Lisa Madigan – who helped negotiate the settlement between Bank of America and the U.S. Justice Department and state attorneys general – expressed confidence that banks would take note in the future.
“I think that the large banks and the market recognizes that they’ve got state attorneys general, they’ve got people at the Department of Justice, they’ve got HUD [Department of Housing and Urban Development], they’ve got the SEC [U.S. Securities and Exchange Commission], they have a lot of people watching them,” she said. “Nobody wants to see another financial crisis hit this country.”
Madigan’s office said Bank of America didn’t disclose the risk of residential mortgage-backed securities to the state’s pension funds, and misled the pension systems when they invested in the mortgage-backed securities market.
The overall settlement requires Bank of America to pay a $5 billion cash penalty, another $4.6 billion in remediation payments, and $7 billion in relief to homeowners who lost homes or ended up deep in debt after they were sold mortgages they couldn’t afford.
Of Illinois’ $300 million share of the settlement, $200 million will go to state employee pension funds hit by losses from mortgage-backed securities.
“Illinois’ pension systems invest in mortgage-backed securities, and the assets in those securities were the risky mortgages that people were put into during the housing bubble,” Madigan said. “When that bubble exploded, those investments lost a tremendous amount of value.”
Madigan said the settlement would have little impact on the state’s $100 billion pension debt.
The remaining $100 million for Illinois will go to help consumers who lost their homes, or ended up underwater on their mortgages due to high-risk loans from Bank of America and its subsidiaries.