A lawsuit has been filed against Countrywide alleging the company steered prime Illinois borrowers into subprime mortgages. The company is also accused of charging minorities in the state more than equally qualified whites.
The complaint was filed in Cook County Circuit Court against Countrywide Financial Corp., Countrywide Home Loans Inc. and subprime lender Full Spectrum Lending Inc. by the Office of the Illinois Attorney General, a news release yesterday indicated.
The action follows a two-year investigation involving 83,000 loans closed between 2005 and 2007. The investigation began with a March 2008 fair-lending subpoena triggered by a news story.
“These charges relate to Countrywide practices well before Bank of America acquired the company,” Bank of America Corp. said in a statement. “We are disappointed with the attorney general’s decision to pursue litigation. We have fully cooperated with their investigation and have pointed out significant flaws in the methodology which we believe has been used as the basis for these claims.”
The state said it interviewed Countrywide’s former employees, borrowers and mortgage brokers of as part of the investigation.
The defendants allegedly discriminated against thousands of blacks and Hispanics by steering them into subprime loans more often than similarly situated white borrowers. Minorities were three times more likely to be placed in a high-cost subprime loans than whites. In addition, the state claims minority borrowers were charged more — even on prime mortgages.
“Countrywide Financial Corp. sold higher-cost loans to 50.9 percent of its African American borrowers and 33.8 percent of its Latino borrowers, while only 19.5 percent of the company’s white borrowers received high-cost loans,” the statement said. “Racial disparities could not be explained by objective factors, such as borrowers’ credit scores or debt-to-income ratios.”
A Bank of America spokeswoman didn’t immediately respond to a request for a statement.
The lending disparities were the result of policies that empowered retail employees and brokers with ” almost unlimited discretion in the selection and pricing of loans.” The state alleged that Countrywide employees were able to “manipulate borrowers’ financial information” in the lender’s automated underwriting system. One way data was allegedly manipulated was by adding cashout to refinance transactions that increased the loan-to-value and the rate.
The company failed to establish and implement a system that would automatically refer subprime borrowers to its prime lending operation even if they qualified. A system known as “uplift” was implemented in 2002 and supposed to serve this function. But the AU system combined with employee discretion rarely led to such an upgrade.
In fact, according to the state, employees and brokers were paid more for originating subprime loans and charging higher interest rates.
Countrywide allegedly began targeting minorities as an “emerging market” early in the last decade.
Violations of the Illinois Human Rights Act and the Illinois Fairness in Lending Act are alleged. The state hopes to obtain an injunction permanently prohibiting Countrywide from discriminating — though the company is no longer in operation. In addition, the state seeks restitution for the borrowers and civil penalties of $25,000 for each violation of the Illinois Human Rights Act.
“Bank of America needs to be held accountable by taking financial responsibility for cleaning up the devastation of the predatory company that it chose to take over,” Illinois Attorney General Lisa Madigan stated in the announcement.
Countrywide was sued in June 2008 by Illinois following a nine-month probe over alleged unfair and deceptive conduct that put borrowers in unnecessarily risky and costly mortgages that they could not afford. Madigan claims that she led negotiations that ultimately led to an $8.7 billion settlement.
Earlier this month, Countrywide Home Loans agreed to a $108 million settlement with the Federal Trade Commission over allegations that the company hit bankrupt borrowers with illegal and excessive fees.