The nation's largest originator agreed with the state of New York to change lending practices for minority borrowers after federal home loan data suggested that such borrowers received more high-cost loans than whites.
Under the terms of the agreement, Countrywide Home Loans Inc. will "substantially" enhance fair lending monitoring activities, compensate borrowers who were improperly given certain costly loans, and implement a $3 million consumer education program to enable borrowers to make informed choices about mortgage products, the Office of the New York State Attorney General announced Tuesday.
The settlement agreement follows an inquiry initiated last year by the office after a review of Home Mortgage Disclosure Act showed that Countrywide's black and Latino customers were more likely than white borrowers to receive high-priced loans in New York in 2004.
Through a commissioned expert statistical analyses of whether the pricing differences could be explained by legitimate factors, such as credit scores or outstanding debts, the office concluded that such factors accounted for much of the disparity, but on average black and Latino borrowers still paid more than whites for loans -- especially with broker-originated loans.
"This agreement should serve as a model for other large lenders who, like Countrywide, seek to eradicate racial and ethnic disparities in mortgage lending and are willing to go the extra mile in their efforts to ensure that minorities do not pay higher prices for mortgage loans than similarly-situated non-minorities," New York Attorney General Eliot Spitzer said in the announcement.
Countrywide announced that it strongly disputed the office's position that HMDA data indicated racial or ethnic disparities in certain loans made in New York, even after taking credit risk factors into consideration.. The lender also highlighted that the agreement does not include a financial penalty against the company and "clearly" indicates Countrywide denies any wrongdoing.
"Countrywide does not believe that the facts support any claim under state or federal anti-discrimination laws," said Rick Wentz, the company's senior managing director and chief ethics officer, in the written statement. "It is our policy to continually evaluate and enhance our compliance monitoring systems. In this regard and spirit, we have worked with the [office] to identify additional measures aimed at strengthening our fair lending controls."
The agreement requires that Countrywide expand monitoring of pricing-related discretionary decisions, such as the decision to relax underwriting requirements, the choice of loan products or features to present to consumers, and the imposition of discretionary charges. Disclosures about the advantages, disadvantages, and relative costs of different mortgage products and features must be improved as well.
The Calabasas, Calif.-based lender also agreed to increase the monitoring of broker pricing decisions -- particularly the amount of broker compensation and "stringent" remedial measures against brokers who unjustifiably charge minorities higher prices. Extensive and updated fair lending training for loan officers.
Countrywide must also compensate black and Latino retail borrowers who improperly received subprime or "Alt-A" loans in 2004, the office reported.
The consumer education program will include statewide seminars conducted in English and Spanish by an independent entity. The seminars will target minority consumers and educate about the "advantages, disadvantages and relative costs of different mortgage products and product features; discretionary fees and the fact that such charges are negotiable; the role of mortgage brokers and how they are compensated; and the importance of shopping around when seeking a mortgage," the office reported.
Countrywide added that it agreed to provide no-cost, one-to-one bilingual telephone counseling services, including budget advice and credit analysis, and conduct an advertising campaign to inform the public about the seminars and counseling.
Countrywide, which last year originated nearly a half trillion dollars in residential mortgage loans -- more than any other U.S. lender, additionally pointed out that, although the settlement agreement does not identify any specific instances of discrimination, it agreed to conduct a limited review of loan files originated in 2004 to ensure that black and Hispanic customers received the same loan product options as similarly situated white borrowers, and to correct any discrepancies discovered. The terms call for the review to be limited to loans made through Countrywide's retail channel in New York.
"The resolution confirmed that the company has in place a comprehensive series of policies and monitoring programs for examining whether racial or ethnic disparities exist in pricing exceptions and broker compensation, and to ensure borrowers choose from loan product offerings that are appropriate to their individual situations," said Wentz.
The agreement, which also calls for Countrywide to pay $200,000 for investigation costs, marks the first settlement of a regulatory inquiry arising out of disclosures made under recent HMDA regulations, which disclose the race and ethnicity of high-cost loan borrowers, according to the office's announcement.
The office noted, however, that Countrywide cooperated fully with the attorney general's inquiry while a number of other lenders whose data revealed that blacks and Latinos were substantially more likely to receive high-cost loans -- including HSBC, JP Morgan Chase and Wells Fargo -- refused to do so. A coalition of those banks and their regulator, the Office of the Comptroller of the Currency, went to federal court to obtain an order enjoining the attorney general's probe of these troubling disparities. The matter is currently on appeal.
"OCC continues to fight to shield nationally-chartered banks from state enforcement of fair lending and consumer protection laws," Spitzer said. "We wish that OCC would expend as much effort examining the pricing practices of the national banks it regulates as it has devoted to protecting these banks from our fair lending inquiries."