On Wednesday the US Justice Department (DOJ) announced a $335 million settlement with Bank of America over alleged discriminatory lending practices. This is the largest residential settlement of its kind in the Justice Department’s history.
In 2008 Bank of America acquired Countrywide Financial Corporation, one of the nation’s biggest home lenders. Bank of America, the biggest commercial bank in the US, thought this acquisition could generate some large gains if, in the near future, the mortgage markets began to stabilize.
Unfortunately for BofA, not only have the mortgage markets not stabilized but it quickly found that the Justice Department ‘breathing down its neck.’ The DOJ alleged that Countrywide charged borrowers in 41 states and the District of Columbia higher fees and interest rates because of their race or national origin — not because of their creditworthiness or other financial risk.
The DOJ’s complaint also alleged that Countrywide steered borrowers into subprime loans from 2004 to 2007, harming those qualified African-American and Hispanic borrowers. Subprime loans generally carried costlier terms, such as prepayment penalties and significantly higher adjustable interest rates that increased suddenly after 2 or 3 years, making the payments unaffordable and leaving the borrowers at a much higher risk of foreclosure.
As a result, yesterday BofA agreed to pay $335 million to resolve these allegations. The money will be used to compensate victims of the discriminatory mortgage loans from 2004 through 2007.
Dan Frahm, a Bank of America spokesman, said in a statement that the bank does not practice lending based on race. “We discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues,” Frahm said.
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