Bank of America to pay $335 million settlement over Countrywide loans

Posted by
December 22, 2011

Bank of America Corp. has agreed to pay $335 million to settle allegations that its Countrywide Financial Corp. unit discriminated against minority homebuyers. It’s the largest residential fair-lending settlement in history.

Utah is one of the 41 states where residents may have suffered from the pattern of discriminatory conduct and who may be eligible for part of the settlement.

The agreement resolves a civil complaint that the mortgage lender charged black and Latino borrowers higher fees and steered them into costlier mortgages than other buyers from 2004 to 2008, a period when the company originated millions of home loans.

It also marks Bank of America’s latest step to move past the mortgage-related troubles that have pummeled its bottom line and stock price since acquiring Countrywide in 2008.

The settlement with the U.S. Justice Department was filed Wednesday with the Central District court of California and is subject to court approval.

“These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin,” said Attorney General Eric Holder. “With today’s settlement, the federal government will ensure that the more than 200,000 African-American and [Latino] borrowers who were discriminated against by Countrywide will be entitled to compensation.”

Dan Frahm, a Bank of America spokesman, said in a statement that the bank does not practice lending based on race.

“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,” Frahm said.

Bank of America shares closed at $5.23 on Wednesday, up about 1 percent from the previous day’s close. That’s down more than 60 percent for the year, however, as potential mortgage losses and unresolved litigation have rattled investors and worries about the European debt crisis and overall economy have dragged down most financial stocks.

The United States’ complaint says that Countrywide was aware that the fees and interest rates that its loan officers were charging discriminated against minority borrowers, but failed to impose meaningful limits or guidelines to stop it.

By steering borrowers into subprime loans from 2004 to 2007, the complaint alleges, Countrywide harmed those qualified African-American and Latino borrowers. Subprime loans generally carried costlier terms, such as prepayment penalties and significantly higher adjustable interest rates that increased suddenly after two or three years, making the payments unaffordable and leaving the borrowers at a much higher risk of foreclosure.

“Countrywide’s actions contributed to the housing crisis, hurt entire communities, and denied families access to the American dream,” said Thomas Perez, Assistant Attorney General for the Civil Rights Division.

The settlement amount will be used to compensate victims of Countrywide’s discriminatory mortgage loans from 2004 through 2007, when Countrywide originated millions of residential mortgage loans as the nation’s largest single-family mortgage lenders.

Bank of America, now the nation’s second-largest bank by assets, bought Countrywide in 2008 after the mortgage lender nearly collapsed under the weight of its subprime loans. Bank of America CEO Brian Moynihan, who took over for predecessor Ken Lewis in January 2010, has been working to restore investors’ confidence in the company amid continued losses and lawsuits related to the Countrywide deal.

Last year, for instance, Bank of America agreed to pay $108 million to resolve Federal Trade Commission allegations that Countrywide charged borrowers excessive fees when they fell behind on their mortgages. More than 450,000 borrowers were set to recover money from the settlement, one of the largest in FTC history.

Other big banks have faced questions over their lending practices. Wells Fargo Co. agreed in July to pay an $85 million civil penalty to the Federal Reserve Board over charges that it steered borrowers into costly subprime mortgages and falsified their financial qualifications. The lending occurred before the San Francisco-based bank bought Charlotte’s Wachovia in September 2008.

Article source: http://www.sltrib.com/sltrib/money/53163535-79/countrywide-bank-borrowers-settlement.html.csp

Loans

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.

Comments

No comments yet.

Leave a comment

(required)

(required)