Bank of America agreed to pay a record $335 million in a fair-lending deal with the U.S. to compensate Countrywide Financial borrowers who were charged more for home loans based on race and national origin.
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Acquired by Bank of America in 2008, Countrywide was found to have 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. Between 2004 and 2007, the lender also steered minorities into higher-cost subprime mortgages, even if they qualified for prime loans.
The penalty for Bank of America dwarfs the $30 million paid out for all previous fair-lending settlements extracted by the Justice Department, including the $6.1 million paid last year by American International Group .
“This is huge,” said Warren W. Traiger, a lawyer at BuckleySandler LLP in New York 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.”
The Justice Department’s review covered 2.5 million loans, including data on terms and the creditworthiness of borrowers, and found that Countrywide allowed loan officers and brokers to vary interest rates and fees, and knowingly discriminated against minorities.
Compensation to borrowers could reach more than $1,000 each, with the exact size to be determined based on who originated the loan and whether the borrower was steered into a subprime mortgage, said a Justice Department official. Checks should start going out in about 24 months.
Countrywide was once the largest mortgage lender in the U.S., with 17 percent of the market and $408 billion of loans originated in 2007 alone. But regulators ultimately found its growth to be fueled by lax lending standards, with loans marred by false or misleading data about borrowers and properties.
- Bank of America
- Countrywide Financial