DOJ Finds Latinos Targeted For Sub-Prime Loans

This is one of those stories that gets lost in the holiday shuffle;  it made a few headline waves in specific industry websites right before Christmas Eve. But the story itself has been a long time in coming. The U.S. Justice Department announced a $335 million settlement with Countrywide Financial for discriminatory lending practices.

But it’s not what you may think at first glance. According to the settlement document,

As a result of Countrywide’s policies and practices, Hispanic and African-American borrowers paid Countrywide higher loan fees and costs for their home mortgages than non-Hispanic White borrowers, not based on their creditworthiness or other objective criteria related to borrowers risk, but because of their race or national origin.

The DOJ goes on to say that Countrywide employees intentionally placed Latinos in more expensive sub-prime loans when “similarly qualified” non-Hispanic White borrowers were given prime loans. Approximately 2.5 million Countrywide mortgages were analyzed, all of them issued between2004 and 2008. It’s worth mentioning at this point that former U.S. Secretary of  Housing and Urban Development Henry Cisneros served on the Countrywide Board of Directors from 2001 to 2007. Greenchange.org reported in 2009 that it wasn’t a bad gig at all for Cisneros:

Until late last year, Mr. Cisneros sat on the board of Countrywide, one of the most-lucrative board seats in Corporate America. The position grossed him more than $5 million in stock sales since 2001 and paid him a $360,000 salary in 2006, Securities and Exchange Commission records show.

During many of those years, according to Reuters,

Countrywide overcharged more than 200,000 black and Hispanic borrowers for their loans. About 10,000 were sold risky subprime mortgages, even though their finances were good enough to qualify for cheaper prime rates. Black customers who obtained their mortgages through a Countrywide-affiliated broker were more than twice as likely to get a subprime loan than similar white borrowers. In some markets, they were as much as eight times more likely.

There may not have been an explicit directive from company directors to target Latinos for higher priced mortgages, but there was an indirect incentive:

Countrywide’s employees were paid extra commissions to hand out more expensive mortgages. Brokers could earn fatter fees for convincing borrowers to take out an exotic subprime loan than for a plain-vanilla 30-year-fixed mortgage. And of course, the more borrowers paid in interest and fees, the more money Countrywide made.

It was greed, and it was the relative inexperience of Latino borrowers.

…many (Latinos) had little familiarity with complicated financial transactions, such as taking out a mortgage. During the housing bubble, their inexperience made them an easier mark for unscrupulous lenders, especially if they spoke little English.

It shouldn’t be a surprise then that two-thirds of the victims Justice identified were Hispanic.

Bank of America bought Countrywide in 2008 and has so far been silent on the DOJ’s findings.