Ill. AG, feds reach $335M settlement with Countrywide

Madigan

WASHINGTON (Legal Newsline) - Illinois Attorney General Lisa Madigan and the U.S. Department of Justice announced a $335 million joint settlement on Wednesday with Countrywide, a subsidiary of Bank of America, over allegations of discriminatory lending.

Countrywide allegedly steered Latino and African-American borrowers into risky subprime loans more often than similarly situated white borrowers, charging them more for their loans during the peak of the nation's housing boom. The settlement resolves allegations of widespread and illegal discrimination against minority borrowers at Countrywide, which was purchased shortly after its 2008 collapse by Bank of America.

"Countrywide consistently sold African-American and Latino borrowers riskier loans at a higher cost than similarly credit-situated white borrowers," Madigan said. "Even when Countrywide sold minorities prime loans, they paid more than white borrowers. Now, African Americans and Latinos are still paying a higher price. No one can dispute that minority communities have been hit hardest by this crisis and will feel its effects longer."

Wednesday's settlement provides for an independent administrator to contact and distribute payments for compensation to borrowers identified by the Department of Justice as victims of alleged discrimination by Countrywide. Borrowers who are found to be eligible will be contacted by the administrator.

"This settlement upholds the basic American tenet of justice and fairness for all," Madigan said. "People's access to credit, and the terms of their credit, should be determined on an equal basis, not on the basis of the color of their skin."

The settlement stems from a lawsuit filed by Madigan in June 2010 against Countrywide Financial Corporation, Countrywide Home Loans Inc. and Full Spectrum Lending Inc., an arm of Countrywide that sold subprime loans.

Her suit alleged numerous violations of the Illinois Human Rights Act and the Illinois Fairness in Lending Act and included data to show that caucasian borrowers allegedly paid less for mortgages than minority borrowers and that minority owners were more often sold riskier home loans despite their qualifying for low cost, or prime, loans.

Madigan's analysis of Countrywide loan data alleged that these disparities could not be explained by objective factors, including borrowers' debt-to-income ratios or their credit scores.

In March 2008, Madigan issued a fair lending subpoena to Countrywide after a study by the Chicago Reporter of federally collected mortgage lending data for the Chicago area found that Countrywide Financial Corporation sold higher-cost loans to 33.8 percent of its Latino borrowers and 50.9 percent of its African American borrowers, while only 19.5 percent of the company's white borrowers received high-cost loans in 2006.

Madigan's office alleged that Latino and African-American borrowers were three times more likely to receive a higher-cost subprime mortgage than caucasian borrowers and that Countrywide charged Latino and African-American borrowers higher interest rates and fees on loans throughout the company's range of products, including its prime products, when compared with similarly-situated white borrowers.

Countrywide's subprime sales and loan pricing were the result of company policies that allegedly gave mortgage brokers and employees almost unlimited discretion in the pricing and selection of loans.

Countrywide was once the largest mortgage lender in the United States, including in Illinois, and led the country in subprime loans sold. The failure of millions of these higher-cost mortgages nationwide contributed to the nation's housing crash, resulting in an ongoing foreclosure crisis and an economic recession.

This is the second lawsuit Madigan has filed against Countrywide. In 2008, she filed a consumer fraud lawsuit against the lender for its major role in driving the foreclosure crisis. In November 2008, Madigan led negotiations resulting in an $8.7 billion nationwide settlement of that lawsuit with Bank of America.

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