Wednesday, December 21, 2011

Bank of America Settles Predatory Lending Claims

Today, Bank of America settled discriminatory lending claims brought against it (and Countrywide Financial) by the Justice Department for steering qualified minority borrowers into subprime loans during the run-up to the mortgage crisis in 2008. Bank of America agreed to pay $335 million dollars for Countrywide's role in discriminating against minority borrowers between 2004 and 2008. According to CNN: "Attorney General Eric Holder said a federal probe found discrimination against at least 200,000 qualified African American and Latino borrowers from 2004 to 2008, during the height of the housing market boom. He said that minority borrowers who qualified for prime loans were steered into higher-interest-rate subprime loans."

The role that predatory lending and discriminatory bank practices played in the financial market crisis has been detailed many times on this blog previously. In the reckless lending period that precipitated the mortgage meltdown, minority borrowers were often targeted for subprime loans and in many instances, while qualified to receive prime loans were instead steered into more lucrative subprime loans by lending officers.

"Thomas Perez, assistant attorney general for Justice's civil rights division, said most of the victims of the discrimination were not aware that they were improperly steered to the riskier mortgages. . . . He said the discriminatory practices went to the heart of the problem with subprime mortgages and the financial market meltdown they helped set in motion. These borrowers paid on average tens of thousands of dollars more in interest and were subject to pre-payment penalties. [Perez] said while the discriminatory loans happened across the country, about 30% of the victims were in California, where Countrywide was based. About two-thirds of the victims were Latino. . . . He said that money from the settlement will go to borrowers who were identified by the probe. Details about how they will be compensated are not yet available."

According to the Wall Street Journal, Bank of America responded: "Bank of America neither admitted nor denied the allegations in the settlement. The bank said it settled to resolve issues tied to Countrywide's practices before Bank of America's July 2008 purchase of the lender. The bank said it is 'committed to fair and equal treatment of all our customers.'"


  1. dre:

    Any evidence that Fannie and Freddie were involved in this predatory lending?

    Steve R.

    1. Countrywide preditorized our loan and Bank of America upholds it against us. Bank of America forecloses on a preditory loan without adhering to the rights of the Borrower and is not giving me a copy of my lock-in agreement which shows a lower interest rate than the one on loan documents at signing which were change at last moment without us being notified and we were told we couldn't afford the cheaper loan. I've been trying to get my lock-in agreement document from Bank of America for 3 years now, because it shows proof they are upholding their rihts on a preditory loan and have ignored my rights and requests for my personal documents and six modification attempts. Now they are foreclosing and trying to sell my note so they don't get into more trouble and have Americas name stripped from them. I am a white, native American that has been preditorized on. They would not relent, I will not relent. So I gave it to God and He shall send a solar flare with Him, His Holy Spirit and His Son it, to take care of this situation and remove these workers of iniquity that exploit and judge wage earners thinking they can be God over peoples rights that God gave us.

  2. steve:

    i will post tomorrow on the sec's recent lawsuit against executives at fannie and freddie for engaging in misleading reporting and other allegations of securities fraud. from what i've read, evidence exists that fannie and freddie lowered lending standards and pushed for loans to individuals with risky credit histories, but i have not read anything that indicates that fannie and freddie were targeting minorities and misleading consumers in order to churn for profit, like the private sector lenders.


  3. Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis. ...

    The Beltway story of the crisis claims that Congress's affordable housing mandates had nothing to do with it. But the SEC's lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, "Desktop Underwriter." Fannie did so as part of its "Say Yes" strategy to "provide more 'approve' messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted."

    The SEC also shows how Fannie led private lenders into the subprime market. In July 1999, Fannie and Angelo Mozilo's Countrywide Home Loans entered "an alliance agreement" that included "a reduced documentation loan program called the 'internet loan,'" later called the "Fast and Easy" loan. As the SEC notes, "by the mid-2000s, other mortgage lenders developed similar reduced documentation loan programs, such as Mortgage Express and PaperSaver—many of which Fannie Mae acquired in ever-increasing volumes."

    Mr. Mozilo and Fannie essentially were business partners in the subprime business. Countrywide found the customers, while Fannie provided the taxpayer-backed capital. And the rest of the industry followed.

    By December 31, 2006, Fannie owned or securitized some $43.3 billion of these loans, which, according to the SEC, had "higher average serious delinquency rates, higher credit losses, and lower average credit scores" than Fannie's disclosed subprime loans. By June 30, 2008, Fannie had $60 billion in EA loans and $41.7 billion in another risky program called "My Community Mortgage," but it only publicly reported an $8 billion exposure.

    continued ...

  4. ... continued

    The SEC says Fannie executives also failed to disclose the company's total exposure to risky "Alt-A" loans, sometimes called "liar loans," which required less documentation than traditional subprime loans. Fannie created a special category called "Lender Selected" loans and it gave lenders "coding designations" to separate these Alt-A loans from those Fannie had publicly disclosed. By June 30, 2008, Fannie said its Alt-A exposure was 11% of its portfolio, when it was closer to 23%—a $341 billion difference.

    All the while, Fannie executives worked to calm growing fears about subprime while receiving internal reports about the company's risk exposure. In February 2007, Chief Risk Officer Enrico Dallavecchia told investors that Fannie's subprime exposure was "immaterial." At a March 2007 Congressional hearing, CEO Daniel Mudd testified that "we see it as part of our mission and our charter to make safe mortgages available to people who don't have perfect credit," adding that Fannie's subprime exposure was "relatively minimal." The Freddie record is similarly incriminating.

    The SEC's case should embarrass Congress's Financial Crisis Inquiry Commission, which spent 18 months looking at the evidence and issued a report in January 2011 that whitewashed Fan and Fred's role. Speaker Nancy Pelosi created the commission to prosecute the Beltway theory of the crisis that private bankers caused it all, and Chairman Phil Angelides delivered what she wanted.

    Far from being peripheral to the housing crisis, the SEC lawsuit shows that Fan and Fred were at the very heart of it. Private lenders made many mistakes, but they could never have done as much harm if Fan and Fred weren't providing tens of billions in taxpayer-subsidized liquidity to lend on easy terms to borrowers who couldn't pay it back.

    -- "What Fannie and Freddie Knew‏", WSJ

  5. Of course, this settlement isn't about Bank of America at all, it's about Countrywide and it's corrupt relationship with the former Democrat Party operatives who were running Fannie and Freddie at the time. A corrupt relationship that was facilitated and promoted by the Democrats in the Congress. How ironic, that the supposed champions of racial equality in homeownership and lending were, in fact, helping to promote discrimination.

    Following the collapse of the housing market the Democrats tried to shield Mozilo from scrutiny in an effort to protect themselves. Key Democrats including Chris Dodd, Kent Conrad, Barbara Boxer and Edolphus Towns had taken out sweetheart mortgages through Mozilos "Friends of Angelo" VIP program designed to purchase political influence:

    "Rep. Edolphus Towns (D-N.Y.) locked Republicans out of the House Oversight and Government Reform Committee room to keep them from meeting when Democrats aren’t present. Towns’ action came after repeated public ridicule from the leading Republican on the committee, Rep. Darrell Issa (R-Calif.), over Towns’s failure to launch an investigation into Countrywide Mortgage’s reported sweetheart deals to VIPs.Countrywide, now owned by Bank of America, was reported to have given VIP loans and treatment to lawmakers and officials at the federal and local level who were in a position to influence policy affecting the mortgage giant. Issa has repeatedly reminded Committee Democrats that Bank of America officials had said they would turn over records on the VIP program – but only in response to a subpoena." -- The Hill

    "The discovery that Countrywide Financial Corp. recorded phone conversations with borrowers in a controversial mortgage program that included public officials -- and that those recordings have been destroyed -- has prompted new congressional calls for more information about the program. Rep. Darrell Issa of California, the ranking Republican on the House Oversight and Government Reform Committee, is trying to subpoena the remaining records of Countrywide's VIP loan program. So far, the committee's chairman, New York Democratic Rep. Edolphus Towns, has turned down that request." -- WSJ

    ... a Democratic congressman, who rejected Republican calls for records about Countrywide's preferential treatment practices, reportedly received two of those loans. The Wall Street Journal reports House Oversight Committee Chairman Edolphus Towns says his decision not to subpoena the records had nothing to do with his mortgages." -- FOXNews

    "Boxer, as chairwoman of the Senate Ethics Committee, led a yearlong investigation beginning in 2008 into whether two Democratic senators acted improperly by being part of a VIP Countrywide program that gave influential clients favorable treatment. At that time, Boxer told reporters that she had not been a part of the company’s VIP program and did not currently have any Countrywide mortgages. According to extensive research provided to The Daily Caller by the non-partisan Foundation for Ethics in Public Service, Boxer conducted business with Countrywide ... as co-signer of a house with her son. The group argues that if you add up all the transactions, including re-finances ... Boxer has actually signed for at least seven Countrywide mortgages. Leslie Merritt, the executive director of the watchdog group, said Boxer was “less than candid, if not lying” about her dealings with Countrywide by not disclosing more. ..." -- Daily Caller

    continued ...

  6. ... continued

    The amount of savings these mortgages provided was substantial. Chris Dodd, for instance, was said to have saved approximately $75,000 in fees and interest on just one of the six mortgages he received.

    Instead of conducting a legitimate investigation, Democrats schemed to shift blame unto the private sector and used the narrative that they created as the justification for far reaching regulatory reform - reform to be written by the very people most responsible for the crisis.

    The investigation into Fannie, Freddie and Angelo Mozilo should have been taken out of the hands of the leftist political appointees at the DOJ, who have done everything in their power to prevent the exposure of Democrat Party complicity and corruption, including declining to press criminal charges against Mozilo, and turned over to a independent special prosecutor.

  7. I've been trying to get my lock-in agreement document from Bank of America for 3 years now, because it shows proof they are upholding their rihts on a preditory loan and have ignored my rights and requests for my personal documents. Now they are foreclosing and trying to sell my note so they don't get Americas name stripped from them. They would not relent, I will not relent. So I gave it to God and He shall send a solar flare with Him, His Holy Spirit and His Son it, to take care of this situation and remove these workers of iniquity that exploit and judge wage earners thinking they can be God over peoples rights that God gave us.

  8. i am currently iin a mortgage with a single mom with a disabled son.ive paid 1000 to1200 a month for 6 plus years on an 89,000$ home.ive only gone down on my principle 6000 in 6 plus years.mathematicly i will never own my home.what should i do?contact; help.i feel i was set upfor failure.i get threats often.

  9. The vital information in this blogs has allured me.USDA mortgage

  10. Fighting them right now. Filed a suit against B of A in December.
    Came out of that hole and now they are taking my equity