In 2006 Countrywide Financial Corporation financed 20 percent of all mortgages in the United States. In 2008 Bank of America completed the purchase of Countywide Financial Corporation (Countrywide) and merged the business of Countrywide into the mortgage unit of Bank of America, Bank of America Home Loans.
Bank of America has agreed to a $335 million settlement of litigation that alleges Countrywide exhibited systematic and blatant discrimination against minority borrowers during the time period of the housing boom.
Borrowers were charged higher fees and interest rates because of their race or national origin and not because of the worthiness of their credit or other objective criteria related to borrower risk. The borrowers were not aware of this practice at the time of completing their loan application. Higher fee and interest rate loans are generally classified as subprime loans. In comparison to conventional loans, subprime loans generally include costly terms, such as prepayment penalties and higher adjustable interest rates that significantly increase after a few years, making payments unaffordable and leaving borrowers at a much higher risk of foreclosure.
During the 5 years included in the settlement, Countrywide made 20,047 high fee and interest rate loans to Hispanic and African-American borrowers in South Florida. During 2006, the peak year for subprime lending, Countrywide made 12,447 loans to Hispanic and African-American borrowers.
Of the African-American borrowers in South Florida who received loans during the housing boom, 49 percent were steered to subprime loans; of the Hispanic borrowers 44 percent were steered to subprime loans, and that compares to 25 percent of non-Hispanic white borrowers over the same time period.
A number of Hispanic and African-American borrowers actually qualified for conventional loans but were steered to subprime loans essentially because Countrywide brokers received higher commissions for signing borrowers to subprime loans and independent brokers contracting with Countrywide were paid higher commissions than that paid to Countrywide brokers for the same practice.
Bank of America spokesman, Dan Frahm said, “We reached this settlement to resolve issues about Countrywide’s alleged historic practices that occurred before Bank of America acquired the company. Bank of America’s practices are not at issue.”
The National Council of La Raza, a Hispanic group issued a statement, “The settlement sends a powerful message that the financial institutions shall be held accountable for targeting communities of color with unfair practices that have led to needless foreclosures.”
The National Association for the Advancement of Colored People (NAACP) issued a statement, “Bank of America’s acquisition of Countrywide allowed it to rectify what the organization considers Countrywide’s most egregious practices. Bank of America takes one more important step toward creating a fairer lending environment for consumers.”
If the settlement is approved by the presiding judge, victims will receive up to several thousand dollars, with larger amounts going to those who were steered into subprime loans despite qualifying for conventional loans.
Borrowers who believe that are eligible for compensation should contact the Department of Justice at countrywide.settlement@usdoj.gov.
Enjoyed this article? Receive email alerts when new articles are available. Just click on the “Subscribe Button”.
Comments