BofA Said Close to Settling Countrywide Fair-Lending Probe

BofA Close to Settling Fair-Lending Probe Into Countrywide
A customer enters a Countrywide Financial Corp. branch in Glenview, Illinois. Before its acquisition by Bank of America Corp., Countrywide was the nation’s biggest provider of subprime mortgages. Photographer: Tim Boyle/Bloomberg

Bank of America Corp. is close to settling a U.S. Justice Department probe into whether its Countrywide Financial Corp. unit violated fair-lending practices, said two people with knowledge of the discussions.

A deal may be announced as early as this week and will include money to compensate Countrywide customers, said the people, who declined to be identified because the talks were private. Charlotte, North Carolina-based Bank of America acquired subprime lender Countrywide in 2008, and with it billions of dollars in mortgage liabilities.

The DOJ is “being very aggressive reviewing mortgage data, and where they determine a lender is not adequately serving a particular community, they are doing things like requiring banks to open branches in lower-income areas,” said Warren W. Traiger, a lawyer at New York-based BuckleySandler LLP who advises financial firms on fair-lending compliance.

Bank of America, the second-largest U.S. lender by deposits, would be the biggest financial firm to settle a case with the Justice Department’s new fair-lending unit. The DOJ has extracted more than $30 million in compensation for loan discrimination cases, including deals with American International Group Inc. and Citizens Republic Bancorp Inc.

More Scrutiny

The Obama administration has increased scrutiny of banks to prevent redlining -- excluding borrowers in low-income or minority neighborhoods -- as well as pricing discrimination and steering customers to products based on race or national origin. The 1977 Community Reinvestment Act requires banks to make loans in all of the areas they serve.

The Countrywide probe was among seven authorized suits and more than 20 active fair-lending investigations being pursued by the Justice Department, Thomas E. Perez, the assistant attorney general in charge of the DOJ’s civil-rights division, said in a Nov. 7 speech.

“There were terrible things that went on in the past, I get that,” said Christine Clifford, vice president of Access Mortgage Research & Consulting Inc. in Columbia, Maryland. “But our housing industry won’t rebound until people are lending again. Banks are scared to death about fair lending, because the feeling is that the DOJ is going to go after you.”

Subprime Loans

Before being acquired, Countrywide was the biggest U.S. provider of subprime mortgages, a type of loan that regulators have said was offered disproportionately to minorities. Xochitl Hinojosa, a Justice Department spokeswoman, and Bank of America’s Dan Frahm said they couldn’t comment on the settlement.

Bank of America Chief Executive Officer Brian T. Moynihan, 52, is cleaning up Countrywide liabilities inherited from the takeover made by his predecessor, Kenneth D. Lewis. The company has committed about $40 billion for mortgage refunds, lawsuits and foreclosures since 2007.

The bank’s shares dropped 3 cents to $5.14 as of 10:58 a.m. in New York. They have plunged more than 60 percent this year amid concern that mortgage-related costs will increase and Europe’s sovereign-debt crisis will slow global economic growth.

Bank of America also faces a lawsuit from Illinois Attorney General Lisa Madigan alleging Countrywide steered black and Latino borrowers into riskier subprime mortgages and charged them more than whites. That suit, filed in June 2010, is still pending, said Robyn Ziegler, a spokeswoman for the Illinois attorney general’s office.

The bank is still in negotiations, along with four other mortgage servicers, to settle unrelated probes from U.S. regulators and dozens of attorneys general that the firms used so-called robo-signers to improperly submit foreclosure documents without verifying them.

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