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LOS ANGELES - Countrywide Financial Corp. has agreed to pay $335 million to settle claims by the U.S. government that the lender and its subsidiaries engaged in discriminatory lending practices by steering African-American and Hispanic borrowers toward subprime mortgage loans with higher interest rates and fees, the U.S. Department of Justice announced Dec. 21 (United States of America v. Countrywide Financial Corp., et al., No. CV11-10540, C.D. Calif.).
(Consent decree available. Document #85-111223-039X. Complaint available. Document #85-111223-040C.)
Under the proposed consent decree, which was filed in the U.S. District Court for the Central District of California, the funds from the settlement would be used to compensate the more than 200,000 African-American and Hispanic borrowers affected by the defendants' practices from 2004 through 2008. According to the Justice Department, the settlement marks the first time the agency has alleged and provided relief for borrowers who were steered into loans based on their race or national origin.
In its complaint, which was also filed Dec. 21, the Justice Department contended that Countrywide and its subsidiaries charged African-American and Hispanic borrowers higher fees and interest rates compared to non-Hispanic, white borrowers in both retail and wholesale lending and that these discrepancies were based on the individual borrowers' race or national origin rather than the borrowers' creditworthiness or other objective data. In addition, the government claimed that Countrywide and its subsidiaries steered African-American and Hispanic borrowers toward subprime mortgage loans when non-Hispanic, white borrowers with similar credit profiles received prime loans.
According to the government, Countrywide's business practice allowed its loan officers and mortgage brokers to employ a discretionary pricing policy that allowed them to vary a loan's interest rate and other fees from the price it set based on information other than a borrower's objective credit information. As a result, African-American and Hispanic borrowers were often required to pay more for their loans, the government claimed. The Justice Department also complained in its lawsuit that Countrywide was aware of the fees and interest rates it was charging to African-American and Hispanic borrowers but did not impose meaningful limits to stop it.
The proposed settlement resolves the government's pricing and steering claims against Countrywide, as well as its claims under the Equal Credit Opportunity Act. As part of the settlement, Countrywide agrees to implement policies and practices that prevent discrimination if it returns to the lending business in the next four years. Countrywide is currently a subsidiary of Bank of America N.A. and does not originate new loans. The Justice Department began its investigation into Countrywide's practices in 2007.
U.S. Attorney General Eric H. Holder, Assistant Attorney General Thomas E. Perez, Principal Deputy Chief Donna M. Murphy, Patricia O'Beirne, Burtis M. Dougherty and Daniel P. Mosteller of the U.S. Department of Justice in Washington, D.C., and U.S. Attorneys Andre Birotte Jr., Leon W. Weidman and Sekret T. Sneed in Los Angeles are counsel for the government.
Melanie Brody of K&L Gates in Washington is counsel for Countrywide.
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