Bank of America Corp's Countrywide Financial unit agreed on Wednesday to pay a record $335 million to settle civil charges that it discriminated against minority homebuyers, a historic settlement for the Obama administration in the wake of the subprime mortgage morass.
As the financial crisis was building in 2008, Bank of America bought Countrywide, which specialized in so-called subprime mortgages, focusing on loans to those with lower credit ratings and charging them higher interest rates.
The settlement covers conduct between 2004 and 2008 before the acquisition by Bank of America, and involves a range of alleged wrongdoing including charging African-Americans and Hispanics higher interest rates and fees and steering some to more expensive subprime mortgages.
"In today’s settlement with Countrywide Financial Corporation, we resolved the government’s allegations that Countrywide and its subsidiaries – which are now owned by Bank of America – engaged in discriminatory mortgage lending practices against more than 200,000 qualified African-American and Hispanic borrowers from 2004 through 2008," U.S. Attorney General Eric Holder said in a statement.
Holder said that the investigation found a widespread pattern of discrimination against more than 200,000 people in more than 180 geographic markets across 41 states and the District of Columbia.
"These allegations represent alarming conduct – by one of the largest mortgage lenders in this country, during the height of the housing market boom," he added.
The money will be used to compensate victims of Countrywide's discriminatory mortgage loans from 2004 through 2007, the Justice Department said.
Minorities were steered to more expensive subprime loans even though they were qualified for traditional mortgage rates. Justice Department officials said it was the largest residential discrimination settlement in U.S. history.
"The victims had no idea they were being victimized. They were thrilled to have gotten a loan and realize the American dream," Thomas Perez, head of the Justice Department's civil rights division, told reporters. "This is discrimination with a smile."
Countrywide had net earnings of about $6.7 billion between 2004 and 2007, according to the Justice Department.
"We are committed to fair and equal treatment of all our customers, and will continue to focus on doing what's right for our customers, clients and communities," said Bank of America spokesman Dan Frahm.
"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," he said, noting that Bank of America's own practices were not at issue.
The settlement comes as the Obama administration has faced some criticism for the lack of prosecutions related to the conduct of financial institutions during the U.S. housing crisis.
The Justice Department's civil rights division has about 20 investigations open into allegations that financial institutions engaged in discriminatory practices against minorities buying homes.