Bank of America will pay $335 million to settle lending discrimination claims against Countrywide
Bank of America has agreed to pay $335 million to settle claims that Countrywide discriminated against Hispanic and African-American borrowers during the housing boom.
Countrywide – owned by Bank of America since 2008 – was sued by the Department of Justice for charging higher fees and interest rates to Hispanic and African-American borrowers than white borrowers with the same credit qualifications. Countrywide was also accused of purposely placing Hispanic and African-American borrowers in riskier subprime loans – often with unfavorable terms like ballooning interest rates, higher fees, and prepayment penalties – even when those borrowers were qualified to receive prime loans.
“If you were African-American or Hispanic and you went to Countrywide for a loan, and you were qualified, you likely paid more simply because of the color of your skin,” said Assistant Attorney General Thomas E. Perez, who heads the Department of Justice’s Civil Rights Division.
The Department of Justice estimated that more than 200,000 Hispanic and African-American borrowers across the country were subjected to Countrywide’s discriminatory lending practices between 2004 and 2008. Two-thirds of the borrowers were Hispanic and one-third were African-Americans.
The cities most affected include Los Angeles, Riverside, Chicago, Houston, Miami, New York, Washington, D.C., Phoenix, San Diego, and Las Vegas.
The settlement will require Bank of America to help locate and compensate victims of Countrywide’s discriminatory loan pricing. (Individuals who believe they may be victims of lending discrimination by Countrywide may email the Justice Department at firstname.lastname@example.org for more information.)
Any settlement funds not distributed after two years will be donated to non-profit organizations that provide credit and housing counseling services to African-American and Hispanic borrowers.
According to the Justice Department, Countrywide’s policies gave wide latitude to employees and mortgage brokers to set loan fees and offer less favorable and more expensive loans to borrowers without having to justify their decisions. In many cases, Countrywide charged higher fees and imposed tougher terms based on an applicant’s race and ethnic origin rather than the person’s financial qualifications.
“Countrywide had knowledge that the unguided and subjective discretions it granted…was being exercised in a manner that discriminated against Hispanic and African-American borrowers, but continued to implement its policies and practices with that knowledge,” according to the DOJ’s complaint.
Hispanic & African-Americans who qualified for prime loans were steered to subprime loans
Hispanic and African-American applicants, even those who met Countrywide’s standards for prime loans, were more likely to be steered to subprime loans. Meanwhile, White applicants with the same credit qualifications were more likely to be offered prime loans by Countrywide.
This meant that Hispanic and African-American borrowers were subjected to unfavorable loan terms such as:
- Prepayment penalties. This means that a loan cannot be repaid before a certain period of time, which is typically five years, guaranteeing that Countrywide would collect interests (or profits) on the loan for a certain time. Borrowers who sell or refinance their homes before their prepayment period is over would have to pay the penalty fee.
- Short-term low interest rates. Homeowners would start with low interest rates for the first few years of their loan. However, the interest rates would eventually rise, thereby increasing the homeowners’ monthly payments. Homeowners who were accustomed to the low introductory rates often struggled to meet the ballooning payments as a result of the interest rate increases.
- Higher upfront fees.
Borrowers placed in subprime mortgages often paid thousands in extra costs than they would have with a prime loan.
“For the Hispanic and African-American families Countrywide placed in subprime loans when those families could have received prime loans, the economic burdens and risks, including the increased risk of delinquency or foreclosure, were particularly high,” according to the DOJ’s complaint.
The complaint noted that 1 in 3 subprime loans originated by Countrywide are now in “serious delinquency” or in foreclosure compared to just 1 in 10 prime loans in delinquency or foreclosure.
Although Countrywide aggressively marketed to the Hispanic and African-American communities, Perez said the company exploited the trust of those borrowers who were “thrilled to have gotten a loan and realized the American dream.”
“Once those borrowers walked into Countrywide’s door, they did not receive fair and equal terms, they received discriminatory terms. And chances are, the victims had no idea they were being victimized,” said Perez. “They had no idea that they could have, and should have, gotten a better deal. This is discrimination with a smile.”
Countrywide’s loan officers & mortgage brokers charged higher fees to Hispanic and African-American borrowers
Countrywide’s policy allowed loan officers and mortgage brokers to charge significantly higher loan fees to Hispanic and African-American borrowers than the fees charged to White borrowers.
The DOJ’s investigation found that in 2007 Hispanics and African-Americans in Chicago and Los Angeles paid hundreds more in loans fees than White borrowers with the same credit background. In Chicago, Hispanic and African-American borrowers paid an average $795 and $460, respectively, more in loan fees for a $200,000 mortgage. In Los Angeles, Hispanic borrowers paid an average $545 and African-American borrowers paid an average $415 in higher fees than White borrowers did for a $200,000 loan.
Mortgage brokers were allowed by Countrywide to “exercise subjective, unguided discretion” in setting their fees. In fact, Countrywide relaxed caps on broker fees in December 2004, during the height of the housing boom. Under Countrywide’s policy, brokers could charge borrowers as much as $10,000 for a $200,000 prime loan and up to $12,000 for a $200,000 subprime loan. As a result, Hispanics and African-Americans were often charged hundreds more in broker fees than White borrowers with similar qualifications.
The Justice Department’s complaint showed that a $200,000 loan in 2007 would cost:
- a Hispanic borrower in Los Angeles an average $970 in higher broker fees than a White borrower;
- an African-American borrower in Los Angeles an average $1,195 in higher broker fees than a White borrower;
- a Hispanic borrower in Chicago an average $1,100 in higher broker fees than a White borrower;
- and an African-American borrower in Chicago an average $1,235 in higher broker fees than a White borrower.
The Justice Department blamed Countrywide’s biased pricing practices the company’s compensation structure, which encouraged charging excessive fees and higher interest rates, and lax policies that allowed subjective decision-making by loan officers and mortgage brokers.
Countrywide was one of the nation’s largest mortgage lenders and originated more than 4 million residential mortgages between 2004 and 2008. The Justice Department’s investigation reviewed 2.5 million of home loans made by Countrywide.
To report financial fraud, including mortgage fraud, to the Justice Department, please visit StopFraud.gov.
- Justice.gov: United States vs. Countrywide Financial et al – complaint (PDF)
- Justice.gov: United States vs. Countrywide Financial et al – consent order (PDF)
- Justice.gov: Statement by Assistant Attorney General Thomas Perez on the Bank of America/Countrywide settlement
- Justice.gov: Statement by Attorney General Eric Holder on the Bank of America/Countrywide settlement