A Bank of America Settlement has been reached, which requires them to pay a record $335 million to compensate Countrywide Financial Corp. borrowers who were charged more for mortgage loans based on national origin or race. The U.S. Justice Department announced on Wednesday that Bank of America will be responsible for repaying black and Hispanic customers who were affected in the unfair lending settlement.
Countrywide Minority Borrowers Charged Higher Fees
Bank of America is responsible for repaying minority borrowers who were assessed higher fees and interest rates when acquiring Countrywide home loans prior to the housing crisis.
Between the years of 2004 and 2007, Countrywide charged higher fees to more than 200,000 black and Hispanic borrowers, even when they qualified for prime loans. Loan officers and brokers for the company were given the freedom to issue varied rates at will, resulting in many offering Caucasians with similar credit profiles prime loans.
Experts say this and other actions from Countrywide served as a driver of the subprime crisis that helped create the Great Recession. While Bank of America did not participate in Countrywide’s unfair lending practices, it acquired the bank in 2008, making BofA financially responsible for the lender’s actions.
Bank of America Settlement Sets Record
The penalty for Bank of America, currently the second-largest U.S. lender by deposits, is considerably higher than previous fair-lending settlements. To date, all other settlements extracted by the Justice Department have totaled $30 million, including $6.1 million paid by American International Group (AIG) last year.
In an effort to discourage loan discrimination after the housing bust forced record defaults, the Obama administration has boosted scrutiny of major banks.
“We will not hesitate to hold financial institutions accountable, including one of the nation’s largest,” Attorney General Eric Holder said in a statement. “These institutions should make judgments based on applicants’ creditworthiness, not on the color of their skin.”
Compensation to borrowers could reach more than $1,000 each; however, the exact size will depend on who originated the loan. In addition, repayment amounts will be determined by whether the borrower was steered into a subprime product.
Bank of America Settlement checks are expected to start going out to qualified borrowers in about 24 months.
