$335 Million Settlement on Countrywide Lending Bias
By
CHARLIE SAVAGE
Published: December 21, 2011

A department investigation concluded that Countrywide had charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk. It also steered more than 10,000 minority borrowers into costly subprime mortgages when white borrowers with similar credit profiles received prime loans, the department said.

The pattern and practice covered the years 2004 to 2008, before Countrywide was acquired by Bank of America.

"The department’s actions against Countrywide makes clear that we will not hesitate to hold financial institutions accountable, including one of the nation’s largest, for discrimination," Attorney General Eric H. Holder Jr. said. "These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin."

Dan Frahm, a Bank of America spokesman, stressed that the allegations were focused on Countrywide’s conduct before Bank of America purchased it in 2008.

"We are committed to fair and equal treatment of all our customers, and will continue to focus on doing what’s right for our customers, clients and communities," he said. "We discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues."

The Justice Department had been examining whether Countrywide used unfair lending practices during the heyday of the housing boom, including charging higher fees and rates to Hispanic and African-American mortgage applicants than to white applicants who had the same qualifications.

A court filing in 2010 in a civil fraud case brought by the Securities and Exchange Commission against Angelo R. Mozilo, the former chief executive of Countrywide, disclosed that the firm’s lending practices during the heyday of the housing boom were under scrutiny.

It showed that regulators with the Federal Reserve, analyzing Countrywide data from 2004, had uncovered evidence of "statistically significant disparities by race and ethnicity" among its customers: African-American and Hispanic borrowers were being charged higher fees and rates than whites. The filing also showed that the Fed had referred the matter to the Justice Department’s civil rights division in early 2007.
Under federal civil rights laws — including the Fair Housing and Equal Credit Opportunity acts — a lending practice is illegal if it has a disparate impact on minority borrowers. Amid the housing boom, the Justice Department brought relatively few enforcement actions based on fair lending laws under the Bush administration.

But against the backdrop of the foreclosure crisis, the Obama administration has made a major effort to step up enforcement of fair lending laws. In January 2010, the division created a unit to focus exclusively on banks and mortgage brokers suspected of discriminating against minority mortgage applicants, a type of litigation that requires extensive and complex analysis of data. It also reached an agreement to gain access to data the Treasury Department is collecting from banks about loan modifications for people seeking to avoid foreclosure.

Working with bank regulatory agencies and the Department of Housing and Urban Development, the unit has reached settlements or filed complaints in 10 cases alleging that a lender engaged in a pattern or practice of discrimination — such as by charging African-American borrowers higher upfront fees than non-Hispanic white borrowers or by steering minorities into subprime loans even though they qualified for regular mortgages with lower interest rates.

The cases that have been settled, including one with a subsidiary of A.I.G., have extracted more than $30 million in compensation for individual borrowers, according to a speech in November by Tom Perez, the assistant attorney general for the Civil Rights Division. In those remarks, Mr. Perez said there were seven authorized lawsuits and more than 20 active investigations, including the one "against Bank of America/Countrywide" that had previously been disclosed.

With its aggressive pursuit of growth in the home lending market, Countrywide became a symbol of the excesses and collapse of the housing boom. After accumulating $200 billion in assets, it nearly fell into bankruptcy. As the financial crisis began to mount, it was taken over by Bank of America for $2.8 billion.
Regarded as one of the worst deals ever, the acquisition has already cost the bank tens of billions in losses, and investor uncertainty about just how much more red ink is to come is a prime reason that its stock has lost roughly two-thirds of its value over the last two years.

The decision to buy Countrywide came well before Bank of America’s current chief executive, Brian T. Moynihan, took over in December 2009. But the resulting problems have proved to be a major headache for him and other top managers, with investors seeking to force the bank to buy back billions in soured mortgages, arguing that they did not conform to proper underwriting standards and the risks weren’t fully disclosed.

While Wednesday’s settlement put one legal headache behind the bank, the second-largest in the United States by assets, it still faces legal challenges on a host of other fronts. Besides the effort to force it to buy back the defaulted mortgages, Bank of America and other large servicers are in the final stages of negotiations with state attorneys general to settle an investigation into improper foreclosure practices.
That settlement could cost the largest servicers more than $20 billion.

The remnants of Countrywide and its mortgage servicing unit agreed in June 2010 to pay $108 million to settle federal charges that the company charged highly inflated sums to customers struggling to hang on to their homes. The settlement resolved the biggest mortgage-servicing case ever brought by the Federal Trade Commission with one of its largest overall judgments. The money was to be used to reimburse homeowners who were charged excessive fees.

In August 2010, the company agreed to pay $600 million to settle shareholder lawsuits over its mortgage losses.

http://www.nytimes.com/2011/12/22/bu...e-lending.html