Countrywide Home Loans signs were replaced by Bank of America in this file… (Brian Vander Brug / Los Angeles…)
Reporting from Los Angeles, New York and — Bank of America Corp. agreed to pay a record $335 million to resolve a government claim that its Countrywide Financial unit discriminated against minority home buyers during the frenzied days of the mortgage boom.
The Justice Department alleged that Countrywide charged higher interest rates and fees to African American and Latino home buyers than to white applicants with similar income levels and credit scores. It marks the largest residential fair-lending settlement in history.
California, one of the worst-hit states when the housing market buckled, was considered by investigators to be the epicenter for the alleged abuses by Countrywide. In one example given in the Justice Department's report, an African American in Los Angeles who borrowed $200,000 in 2007 paid an average of $1,200 more in fees than a comparable white customer.
"Chances are the victims had no idea whatsoever they were being victimized. They were thrilled to have gotten the loan and realized the American Dream," said Thomas E. Perez, head of the Justice Department's civil rights division. "They had no idea they could have and should have gotten a better deal. This is discrimination with a smile."
The $335 million will be distributed to more than 200,000 victims, nearly one-third of them from California, who took out home loans from Countrywide between 2004 and 2008.
A Bank of America spokesman said the alleged abuses occurred before the company bought Countrywide at the peak of the financial crisis in 2008.
"We reached this settlement to resolve issues about Countrywide's alleged historic practices that occurred before Bank of America acquired the company," spokesman Dan Frahm said in a statement. "Bank of America's practices are not at issue."
The case underscores the wrenching economic and personal toll of the subprime mortgage debacle.
The collapse of the housing market beginning in 2007 sparked the U.S. mortgage bust and the brutal recession whose lingering effects continue to reverberate nationwide. The crisis also upended millions of borrowers who lost their homes to foreclosure when they couldn't keep up with the often-escalating monthly payments common on subprime loans.
Though Countrywide portrayed itself as expanding opportunities to people who traditionally couldn't qualify for homeownership, critics say the lender systematically took advantage of underprivileged borrowers who didn't know any better.
"This historic settlement sends a powerful message that financial institutions will be held accountable for targeting communities of color with unfair practices that have led to needless foreclosures," said Janis Bowdler, of the National Council of La Raza, a Latino civil-rights organization. "The findings in [the] DOJ's investigation echo what we've been saying for years — deceptive lenders willfully preyed on Latinos and other minority borrowers, steering them to subprime mortgages even when they had good credit."
About two-thirds of the victims were Latino, with advertising pitches tailored to Spanish speakers, Perez said.
"They understood marketing. They understood how to build trust," Perez said of Countrywide. "'Se habla español,' they said in Latino communities."
The settlement also is a darkly fitting end to a disastrous year for Bank of America, which has suffered a litany of public relations embarrassments that have driven its stock price down 61%. Shares closed Friday at $5.23, up 1.2%, or 6 cents.
The capstone was its test of a $5 debit card fee, which the company rescinded last month after a public outcry.
The company in recent months also has been subpoenaed by the California attorney general and sued by federal regulators over its marketing of mortgage bonds during the financial crisis. Bank of America announced in September that it would lay off more than 30,000 workers.
"Thank God 2011 is over for Bank of America," said Erik Oja, a bank analyst at Standard & Poor's.
Many of Bank of America's problems stem from its acquisition of Countrywide in January 2008 in the depths of the financial crisis.
BofA paid $2.5 billion in stock for the home lender. But when the cost of Countrywide-related legal settlements is factored in, the cost exceeds $20 billion, according to estimates.
"Countrywide is like the endless nightmare," Oja said.
And problems related to Countrywide are far from finished. Perhaps the largest looming issue is an anticipated multibillion-dollar settlement with several state attorneys general, which was expected to be worked out this year.
"It's by no means over," said Nancy Bush, an independent bank analyst.