The Justice Department said on Thursday that it had so far recovered nearly $37 billion from big banks for their role in selling shoddy mortgages before the financial crisis.
Such a large number — intended to deter misdeeds in the future — suggests that Wall Street is being made to pay for its role in stoking the subprime debacle. Yet the financial pain inflicted by the settlements may not be as great in the end.
Take the latest, and largest, mortgage settlement. Bank of America has agreed to a $16.65 billion deal with federal and state authorities. The actual financial burden for Bank of America, however, may not exceed $12 billion — certainly a large amount, but one significantly less than the number the government trumpets.
At issue is how much of the cost of the $7 billion in “soft dollars,” or help for borrowers, the bank will bear under the settlement. Some of the relief the bank will provide involves cutting the principal of a loan to make it easier for the borrower to pay. The dollar amount of that reduction gets credited toward what it needs to fulfill the settlement. But Bank of America wrote down many of its troubled mortgages years ago. And investment firms, not Bank of America, may now own some of the loans that get written down, potentially shielding the bank from a financial hit.