Countrywide Home Loans Inc. will compensate minority borrowers who were allegedly given high-cost loans and implement a $3 million consumer education program as part of an agreement with the New York attorney general’s office.
Attorney General Eliot Spitzer launched inquiries into the lending practices of several banks last year, citing data lenders provide to federal regulators as evidence that black and Latino customers were more likely to receive higher-cost loans.
Data collected from lenders under the federal Home Mortgage Disclosure Act shows minorities are more likely to receive higher-cost loans than whites. But the HMDA data doesn’t include factors used by lenders to underwrite and price loans, including loan-to-value ratios, debt-to-income ratios, and credit history scores. That makes it difficult to determine whether minorities are more likely to get higher-cost loans because of discrimination or because they represent greater risk to lenders, federal regulators who analyze the numbers say.
New York conducted its own statistical analyses of HMDA data after information on higher-cost loans to minorities were released for the first time in 2005. The results of that analysis prompted the attorney general to launch an investigation into the mortgage lending practices of several financial institutions.
Only Countrywide cooperated with New York’s investigation. Other banks, including HSBC, JP Morgan Chase and Wells Fargo, obtained a court order to stop the probe.
The banks were joined by federal regulators at the Office of the Comptroller of the Currency in claiming that the state lacked the authority to supervise or examine the records of national banks. New York has appealed a ruling in favor of banks and the OCC.
The state’s agreement with Countrywide requires the lender to compensate black and Latino borrowers who allegedly received improper subprime or “Alt-A” loans in 2004, and to implement a $3 million consumer education program that includes statewide seminars and individualized counseling targeted at minorities.
The seminars, to be conducted in English and Spanish, will educate participants about the advantages, disadvantages and relative costs of different mortgage products and product features, the attorney general’s office said, and make consumers aware that discretionary fees are negotiable. The seminars will also address the role of mortgage brokers and how they are compensated, and the importance of shopping around when seeking a mortgage.
Countrywide also agreed to expand monitoring of broker pricing decisions, including the amount of broker compensation sought for loans, and to impose stringent measures against brokers who unjustifiably charge minorities higher prices.
Countrywide will provide detailed reports to the attorney general’s office to ensure compliance with the agreement and to track Countrywide’s progress in meeting its fair lending goals, and pay the state $200,000 for the cost of the investigation.