Good afternoon, it is an honor to be here today with the Attorney General and our partners, to announce this historic settlement.
At the core of the allegations in the complaint is a simple story: If you were African-American or Hispanic and you went to Countrywide for a loan, and you were qualified, you likely paid more simply because of the color of your skin. You likely paid more than a similarly-qualified white borrower if you were African-American or Hispanic and received your loan from a Countrywide loan officer, or from Countrywide’s mortgage brokers. And if you were African-American and Hispanic you were far more likely to be steered into an expensive and risky subprime loan than a similarly-qualified white borrower. More than 200,000 African-American and Hispanic victims are identified in the complaint, which alleges that they were charged higher prices or steered into more risky products because of the color of their skin rather than the content of their creditworthiness.
Countrywide built a business based, in large part, on the trust they earned from families as they guided families through the most important financial transaction of their lives. They understood marketing and how to build trust. “Se habla espanol,” they said in Latino communities, and two-thirds of our victims are Hispanic. But as our complaint outlines, they exploited that trust. It was Countrywide’s business strategy, the complaint alleges, to target local African-American and Hispanic markets in order to expand its lending and ultimately gain market dominance in making residential loans in those communities.
But once those borrowers walked in Countrywide’s door, they did not receive fair and equal terms, they received discriminatory terms. And chances are, the victims had no idea they were being victimized. They were thrilled to have gotten a loan and realized the American dream. They had no idea that they could have, and should have, gotten a better deal. This is discrimination with a smile.
This was one of the most extensive investigations in our history. We reviewed data on over 2.5 million loans, including data loan terms and information on each borrower’s creditworthiness.
The investigation was a result of the close partnership with bank regulatory agencies. The Board of Governors of the Federal Reserve originally referred this matter to the Department after they found reason to believe that Countrywide had engaged in a pattern or practice of pricing discrimination. The Federal Reserve contributions to our investigation were significant and we are honored to have Governor Sarah Bloom Raskin with us today. We subsequently received a referral from the former Office of Thrift Supervision, now part of the Office of the Comptroller of the Currency, after they also determined that Countrywide engaged in a pattern or practice of pricing discrimination. We are pleased that Dan Stipano from the Office of the Comptroller of the Currency was able to join us today.
In our complaint, we allege that from 2004 to 2008 Countrywide engaged in a nationwide pattern or practice of discrimination based on race or national origin. The period in question represented the height of the housing bubble, and it is appropriate to focus on this time frame because abusive practices were most pervasive, and often unchecked. As detailed in the complaint, we alleged three different race or national origin claims, as well as a fourth claim based on marital status discrimination.
The first two claims involve discrimination in the pricing of loans. The complaint alleges that between 2004 and 2008, Countrywide’s business practice allowed its employees and mortgage brokers to vary a loan’s interest rate and other fees from the price it set based on a borrower’s objective credit-related factors. Simply put, Countrywide first determined your price based on your creditworthiness and then gave its employees and mortgage brokers the discretion to alter that price without providing guidance or monitoring for fair lending compliance. Guess who benefitted from the discretion? Our complaint alleges that, Countrywide charged more than 200,000 Hispanic and African-American borrowers higher fees and costs for their loans than non-Hispanic White borrowers, not based on borrower risk but because of their race or national origin. Both prime and subprime borrowers were charged more for loans.
The complaint also alleges that between 2004 and 2007, Countrywide’s business practice allowed its mortgage brokers and employees to place a loan applicant in a subprime loan even when the applicant qualified for a prime loan according to Countrywide’s underwriting practices. This conduct goes to the heart of some of the most harmful practices during the subprime boom. As a result of these policies and practices, the odds of an African-American or Hispanic borrower receiving a subprime loan instead of a prime loan were more than twice as high as those for similarly-situated non-Hispanic White borrowers. More than 10,000 Hispanic and African-American borrowers were placed into subprime loans even though non-Hispanic White borrowers who had similar credit qualifications were placed into prime loans.
Hispanic and African-American borrowers who were steered into subprime loans paid, on average, tens of thousands of dollars more for their loans and were subject to possible prepayment penalties, increased risk of credit problems, default, and foreclosure, and the emotional distress that accompanies such economic stress.
Our complaint also alleges that between 2004 and 2008, Countrywide violated the Equal Credit Opportunity Act by requiring spouses who were not applicants on a loan to sign away their rights to their home. For example, if a husband was the only applicant on a loan, the law prohibits lenders from requiring his wife to give up her rights in the home as a condition to giving him a loan. While a lender has a right to ensure it can foreclose on a property, if necessary, requiring a wife to surrender her rights in her home to her husband at the time a loan is made is illegal.
There are more than 200,000 victims identified in our complaint. Two thirds are Latino, and one third are African Americans. While the complaint spans virtually every corner of the country, California, which was the corporate headquarters for Countrywide, was clearly the epicenter of discriminatory activity. Roughly 30 percent of the victims were in California. The more than 200,000 Hispanic and African-American borrowers, while an unprecedented number for our fair lending cases, understates the extent of the harm. These 200,000 borrowers represent families - many of whom will not know they were victims of discrimination. Especially in the case of steering, this discrimination harms not only borrowers and their families, but communities as well.
The proposed consent order we filed today begins to address that harm. It is provides for $335 million in relief for victims of discrimination and sets forth a process to identify and compensate those individuals.
I want to commend our dedicated team of attorneys, economists, investigators, and support staff as well as all of our sister agencies who are here today and are involved in the effort to ensure equal opportunity to access the American dream. I mentioned the important role that the Federal Reserve and the OTS have played in this case. I also want to commend my colleagues at HUD, led by Secretary Donovan and Assistant Secretary John Trasvina and General Counsel Helen Kanovsky, as well as the other banking regulatory agencies who have joined us today, including Patrice Ficklin from the Consumer Financial Protection Bureau, as well as United States Attorneys from virtually every corner of the country have provided invaluable assistance. In particular, I’d like to thank United States Attorney Andre Birotte for his leadership on civil rights and his partnership on this case.
Finally, I would like to commend the Attorney General for his leadership in this area. The Fair Lending Unit he established has brought more cases and received more fair lending referrals from regulators than ever before.
We appreciate that Bank of America has worked cooperatively with the Department to address Countrywide’s discriminatory actions.
And now, Secretary Shaun Donovan, who has led the charge for the Administration on our efforts to combat the housing crisis, will give remarks.