Bank of America Corp's Countrywide Financial unit agreed on Wednesday to pay a record $335 million to settle civil charges that it discriminated against minority homebuyers, an historic settlement for the Obama administration in the wake of the subprime mortgage morass.
As the financial and housing crisis deepened in 2008, Bank of America bought Countrywide, which specialized in so-called subprime mortgages, focusing on loans to those with lower credit ratings and charging them higher interest rates and payments that suddenly increased after two or three years.
The settlement covers conduct between 2004 and 2008, before the acquisition by Bank of America, and involved a range of alleged wrongdoing, including charging African-Americans and Hispanics higher interest rates and fees than non-minorities.
Minorities also were steered to more expensive subprime loans even though they were qualified for traditional mortgage rates. Justice Department officials said it was the largest residential discrimination settlement in U.S. history.
The victims had no idea they were being victimized. They were thrilled to have gotten a loan and realize the American dream, Thomas Perez, head of the Justice Department's civil rights division, told reporters. This is discrimination with a smile.
The civil settlement comes as the Obama administration has faced criticism for the lack of criminal prosecutions related to the conduct of financial institutions during the U.S. housing crisis.
Federal prosecutors dropped a probe of former Countrywide Chief Executive Officer Angelo Mozilo after determining his actions in the mortgage debacle did not amount to criminal wrongdoing.
The proposed settlement was filed in a federal court in California where a judge must approve it.
SWIPE AT BUSH ADMINISTRATION
Perez said that Countrywide's actions contributed to the housing crisis and that the Justice Department was again using tools in its law enforcement arsenal including some that were dormant for years, an apparent swipe at the previous Bush administration.
More than 200,000 African-American and Hispanic borrowers in 41 states and the District of Columbia were affected by Countrywide's conduct, of which 30 percent were in California, a state particularly hard-hit by the mortgage meltdown, the Justice Department said.
They will receive compensation from the money paid by the Bank of America unit, and those steered into subprime mortgages will receive a greater share because they suffered more, Justice Department officials said. However, there was no relief in the settlement for the higher interest rates they pay.
Government investigators reviewed some 2.5 million loans in their probe and found that African Americans and Hispanics were more than three times as likely to receive high-cost subprime loans than non-minorities.
Before imploding and being bought by Bank of America, Countrywide had net earnings of about $6.7 billion between 2004 and 2007, according to the Justice Department.
Countrywide no longer originates new loans.
We are committed to fair and equal treatment of all our customers, and will continue to focus on doing what's right for our customers, clients and communities, said Bank of America spokesman Dan Frahm.
We discontinued Countrywide products and practices that were not in keeping with our commitment, he said, adding that they were working to resolve any remaining Countrywide issues. He also said that Bank of America's own practices were not at issue.
The Justice Department's civil rights division has about 20 investigations open into allegations that financial institutions engaged in discriminatory practices against minorities buying homes.
This is the latest settlement involving Bank of America's Countrywide unit. Earlier this year it agreed to pay $20 million to settle with the Justice Department over allegations Countrywide illegally foreclosed on about 160 members of the U.S. military without court orders.
And the Federal Trade Commission reached a settlement with Countrywide last year for $108 million over allegations it overcharged homeowners for loan servicing fees.
Shares of Bank of America closed up 6 cents, or 1.2 percent, at $5.23 in regular trading on the New York Stock Exchange.
(Reporting By Jeremy Pelofsky and James Vicini; Editing by Gerald E. McCormick, Gary Hill, Tim Dobbyn)