Countrywide, acquired by Bank of America in 2008, assessed higher fees and interest rates to more than 200,000 black and Hispanic borrowers, the U.S. Department of Justice said yesterday in a statement. The lender also steered minorities into higher-cost subprime mortgages from 2004 to 2007, even when they qualified for prime loans, the agency said.
The penalty for Bank of America, the second-largest U.S. lender by deposits, dwarfs the $30 million total for all previous fair-lending settlements extracted by the agency, including $6.1 million paid last year by American International Group Inc. The Obama administration has boosted scrutiny of banks to discourage loan discrimination after the housing bust led to record defaults.
“This is huge,” said Warren W. Traiger, a lawyer at New York-based BuckleySandler LLP who advises financial firms on fair lending. “While lenders need to be concerned about the activities of the civil-rights division of the Justice Department, the magnitude of this flows from a unique set of facts. Countrywide was a driver of the subprime debacle and helped create the Great Recession.”
Millions of Loans
The review covered 2.5 million loans, including data on terms and creditworthiness of borrowers, according to the Justice Department. The agency said Calabasas, California-based Countrywide allowed loan officers and brokers to vary interest rates and fees, and knew it was discriminating against minorities. Whites with similar credit profiles received prime loans, according to the statement.
Bank of America Chief Executive Officer Brian T. Moynihan, 52, is cleaning up liabilities inherited with the takeover of Countrywide that was engineered by his predecessor, Kenneth D. Lewis. The Charlotte, North Carolina-based bank has committed about $40 billion for mortgage refunds, lawsuits and foreclosures since 2007.
“We will not hesitate to hold financial institutions accountable, including one of the nation’s largest,” Attorney General Eric Holder said in the statement. “These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin.”
Before the Takeover
The “alleged historic practices” of Countrywide predate its purchase by Bank of America, and the firm discontinued Countrywide products and practices it didn’t agree with, said Dan Frahm, a company spokesman, in an e-mail. “We are committed to fair and equal treatment of all our customers.”
Yesterday’s accord also settles a lawsuit from Illinois Attorney General Lisa Madigan alleging discriminatory lending practices from Countrywide. The agreement provides for an independent administrator to distribute payments to borrowers identified by the Justice Department, she said in a statement.
Compensation to borrowers could reach more than $1,000 each, and the exact size will depend on who originated the loan and whether the borrower was steered into a subprime product, said a Justice Department official who wasn’t authorized to be identified. Checks should start going out to qualified borrowers in about 24 months, the official said.
“We commend Bank of America for repeatedly seeking to reform the mess they acquired,” Benjamin Jealous, president of the NAACP, said in a telephone interview. “If the people who ran Countrywide were still running it now, we’d be dealing with a very different situation.”
More Negotiations
Bank of America is still in negotiations, along with four other mortgage servicers, to settle unrelated probes from U.S. regulators and dozens of attorneys general that the firms used so-called robo-signers to improperly submit foreclosure documents without verifying them.
“The bank is trying to dig its way out of a hole -- there’s no bigger hole than its Countrywide assets,” said John Taylor, president of the National Community Reinvestment Coalition, which represents community and housing groups. “It is a wise decision to agree with Attorney General Holder to resolve some of the problems that were created as a result of those loans.”
Before being acquired, Countrywide was the biggest U.S. provider of subprime mortgages, loans that regulators have said were offered disproportionately to minorities and more prone to end in default. Bank of America saved the lender from possible bankruptcy in July 2008 when it bought the Calabasas, California-based company for $2.5 billion, almost a year after investing $2 billion in preferred shares.
Impact on Lending
Countrywide was the largest mortgage lender in the U.S. with 17 percent of the market and $408 billion of loans originated in 2007, according to industry newsletter Inside Mortgage Finance. Regulators later found its growth was fueled by lax lending standards, with loans marred by false or missing data about borrowers and properties.
The Countrywide probe was among seven authorized suits and more than 20 active fair-lending investigations being pursued by the Justice Department, Thomas E. Perez, the assistant attorney general in charge of the department’s civil-rights division, said in a Nov. 7 speech.
“There were terrible things that went on in the past, I get that,” said Christine Clifford, vice president of Access Mortgage Research & Consulting Inc. in Columbia, Maryland. “But our housing industry won’t rebound until people are lending again. Banks are scared to death about fair lending, because the feeling is that the DOJ is going to go after you.”
Bank of America rose 1.2 percent to $5.23 in New York trading yesterday, erasing a decline of as much as 1.4 percent. The stock has dropped 61 percent this year on concern about the mounting costs tied to Countrywide’s mortgage lending.
Borrowers with questions about the settlement may send an e-mail to countrywide.settlement@usdoj.gov.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Seth Stern in Washington at sstern14@bloomberg.net
To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net; David Scheer at dscheer@bloomberg.net
http://www.bloomberg.com/news/2011-12-21/bank-of-america-to-pay-335-million-to-end-countrywide-fair-lending-probe.html
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