© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
December 21, 2011 11:47 pm
Bank of America will pay $335m to resolve US allegations that the lender discriminated against African-American and Hispanic borrowers, the latest in a series of legal and costly problems the bank has inherited from its troubled Countrywide unit.
From 2004 to 2008, the bank allegedly overcharged more than 200,000 minority borrowers for home loans compared with similar white borrowers, according to the US Department of Justice. The lender also allegedly steered more than 10,000 creditworthy African-American and Hispanic borrowers into more expensive subprime loans. The Justice Department alleges that the bank did so solely because of the applicant’s race and national origin.
Bank of America denied the allegations in settling the claims, and took pains to distance itself from the accusations levelled at Countrywide Financial. The bank completed its acquisition of the nation’s largest subprime lender on July 1 2008. The alleged discriminatory practices may have continued for another six months, according to the Justice Department.
A bank spokesman said: “Bank of America’s practices are not at issue.”
The money will be distributed to aggrieved borrowers for an average amount of about $1,600. According to the complaint filed in federal court, some borrowers were allegedly overcharged by hundreds of dollars. Others paid thousands of dollars extra due to the alleged discrimination.
The deal comes as BofA faces battles on multiple fronts over its mortgage practices and the Obama administration fights accusations that it has been too soft on alleged wrongdoing by large financial institutions.
Investors are trying to force BofA to swallow tens of billions of dollars in losses over allegedly defective home loan bonds, state and federal prosecutors are trying to extract billions of dollars from the bank for its alleged mistreatment of distressed borrowers, and other regulators are probing its lending and servicing activities.
BofA shares have fallen 61 per cent this year. The bank’s shares are trading at less than 40 per cent of tangible book value.
US banks are facing mounting pressure from politicians, the courts and regulators over their shoddy mortgage foreclosure procedures
The Justice Department is also trying to counter a perception that it has taken a soft line on practices that may have contributed to the financial crisis. For example, in a letter dated Tuesday, Max Baucus, a Montana Democrat, and John Thune, a South Dakota Republican, told their Senate colleagues: “The lack of prosecutions to date for top figures of the 2008 financial crisis has contributed to a perception that financial crimes can go unpunished in America.”
The agreement, the largest federal settlement over discriminatory lending practices, comes nearly five years after the Justice Department first received a referral from the Federal Reserve, Countrywide’s regulator, that the lender had allegedly broken the law by engaging in a “pattern or practice of discrimination”. The DoJ subsequently reviewed more than 2.5m loans to ferret out signs of wrongdoing.
The agency has more than 20 active investigations into alleged mortgage-related wrongdoing, Thomas Perez, an assistant attorney-general, said in November. At the time, the department had seven authorised lawsuits, Mr Perez added, including the Countrywide probe.
The settlement resolves a separate lawsuit launched by Lisa Madigan, Illinois attorney-general, against BofA for allegedly discriminating against her state’s borrowers. Ms Madigan began her probe of Countrywide in 2008. At least $20m will be reserved for aggrieved borrowers in Illinois.
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.