Securities and Financial Sector Legal Review

Bank of America Agrees to Pay a Record $335 million to Settle Countrywide Discriminatory Lending Claims

Posted in Enforcement Actions and Investigations, Mortgage Lending and Foreclosure

Bank of America has agreed to pay $335 million to compensate Countrywide borrowers who were allegedly assessed higher interest rates and fees based on their race and national origin.  Bloomberg reported  that the record settlement “dwarfs the $30 million total for all previous fair-lending settlements extracted by [the Department of Justice].”  The Department of Justice issued a statement yesterday announcing that “[t]he Department of Justice today filed its largest residential fair lending settlement in history to resolve allegations that Countrywide Financial Corporation and its subsidiaries engaged in a widespread pattern or practice of discrimination against qualified African-American and Hispanic borrowers in their mortgage lending from 2004 through 2008.”  The government’s Complaint alleges that:

As a result of Countrywide’s policies and practices, more than 200,000 Hispanic and African-American borrowers paid Countrywide higher loan fees and costs for their home mortgages than non-Hispanic White borrowers, not based on their creditworthiness or other objective criteria related to borrower risk, but because of their race or national origin.

Additionally, as a result of Countrywide’s policies and practices, Hispanic and African-American borrowers were placed into subprime loans when similarly-qualified non-Hispanic White borrowers received prime loans. Between 2004 and 2007, more than 10,000 Hispanic and African-American wholesale borrowers received subprime loans, with adverse terms and conditions such as high interest rates, excessive fees, prepayment penalties, and unavoidable future payment hikes, rather than prime loans from Countrywide, not based on their creditworthiness or other objective criteria related to borrower risk, but because of their race or origin.

The Proposed Consent Order, which is subject to court approval, states that the Countrywide Defendants “deny all the allegations and claims of a pattern or practice of discrimination in violation of the FHA and ECOA as set forth in the United States’ Complaint” and provides for the establishment and administration of a settlement fund for aggrieved persons.  The Washington Post reported that:

Dan Frahm, a Bank of America spokesman, said Wednesday that the allegations pre-date the bank’s acquisition of Countrywide, and that Bank of America has continued to try to resolve the problems created by a lender that became synonymous with questionable practices and toxic loans.

“We reached this settlement to resolve issues about Countrywide’s alleged historic practices that occurred before Bank of America acquired the company,” Frahm said in a statement. “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.”

The ill-fated purchase of Countrywide and its troubled loan portfolio has proved an albatross for Bank of America, triggering billions of dollars in lawsuits, legal battles and settlements. “There aren’t many days that I get up and think positively about the Countrywide transaction,” Bank of America chief executive Brian Moynihan said in a conference call earlier this year.

For further news and analysis, see Countrywide Will Settle a Bias Suit; BofA to pay $335 million to settle fair-lending claims; and Bank of America Coughs Up $335 Million To Settle Discriminatory Lending Case With DoJ.