Bank of America to Pay $335M to Countrywide Financial Corp. Borrowers Over Allegedly Discriminating Lending Practices

Bank of America Corp. has agreed to a record $335 million settlement to pay back Countrywide Financial Corp. borrowers who were billed more for loans because of their nationality and race, while creditworthiness and other objective criteria took a back seat. All borrowers that were discriminated against qualified to receive mortgage loans under Countrywide’s own underwriting standards.

The settlement is larger than any past fair-lending settlements (totaling $30M) that the US Justice Department has been able to obtain to date. Countrywide was acquired by Bank of America in 2008.

According to the Justice Department, Countrywide charged higher fees and interest rates to over 200,000 Hispanic and black borrowers while directing minorities to more costly subprime mortgages despite the fact that they qualified for prime loans. Meantime, the latter were given to non-Hispanic white borrowers who had similar credit profiles.

Under federal civil rights laws, a lending practice is illegal if it has a negative effect on borrowers that are minorities. The US Justice Department’s complain contends that “steering,” which involves using discrimination to place borrowers in subprime loans, was able to occur because it was Countrywide’s practice to let employees and mortgage brokers place a loan applicant in a subprime loan even when that party qualified for a prime loan. Also, mortgage brokers were allowed to use discretion when asking for exceptions to the underlying guidelines.

Subprime loans usually come with higher-cost conditions, such as exploding adjustable interest rates that can suddenly go up after a couple of years, as well as prepayment penalties. All of this can place a borrower at higher risk of foreclosure and render payments unaffordable.

Per the settlement, Countrywide will have to put in place practices and policies to bar discrimination if it decides to go back to the lending business in the next four years. Also resolved are the Justice Department’s claims that the Bank of America subsidiary violated the Equal Credit Opportunity Act.

Countrywide is accused of using marital status to discriminate against non-applicant spouses of borrowers by trying to get them to sign away their rights to home ownership through quitclaim deeds and other documents that ended up giving the borrowing spouse the interest and legal rights in property held by both of them.

A judge still has to approve the settlement. If it goes through, impacted lenders will get between several hundred to several thousand dollars.

Our securities fraud attorneys represent investors that lost money during the subprime mortgage crisis. If you believe that negligence on the part of a financial professional caused your losses, do not hesitate to contact Shepherd Smith Edwards and Kantas, LTD LLP today.

BofA Agrees Record $335M Fair-Lending Deal, Bloomberg, December 21, 2011

Countrywide Will Settle a Bias Suit, New York Times, December 21, 2011

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FDIC Objects to Bank of America’s Proposed $8.5B Settlement Over Mortgage-Backed Securities, Stockbroker Fraud Blog, August 30, 2011