Countrywide Agrees To New Measures To Combat Racial And Ethnic Disparities In Mortgage Loan Pricing

Attorney General Spitzer today announced a groundbreaking fair lending agreement with Countrywide Home Loans, Inc., one of the largest residential mortgage lenders in the country. Under the terms of the agreement, Countrywide will substantially enhance its fair lending monitoring activities; compensate minority borrowers who were improperly given certain costly loans; and institute a $3 million consumer education program that will provide New Yorkers with the tools necessary to make informed choices about mortgage loan products.

Spitzer’s office initiated its inquiry last year after reviewing the federal Home Mortgage Disclosure Act ("HMDA") data showing that Countrywide’s black and Latino customers were more likely than its white customers to receive high-priced loans in New York in 2004. Spitzer’s office commissioned expert statistical analyses to determine whether these pricing differences could be explained by legitimate factors, such as borrower credit scores or outstanding debts. The Attorney General concluded that, although such factors accounted for much of the disparity, on average black and Latino borrowers still paid more than whites for their mortgage loans, especially for loans generated by mortgage brokers.

"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," Spitzer said.

The Attorney General commended Countrywide for its full cooperation with his inquiry.

Specifically, the agreement requires:

  • Expanded monitoring of pricing-related discretionary decisions – such as the decision to relax underwriting requirements, the choice of loan products or features to present to customers, and the imposition of discretionary charges – to ensure that minority borrowers are treated fairly.
  • Increased monitoring of broker pricing decisions, particularly the amount of broker compensation sought for loans, and stringent remedial measures against brokers who unjustifiably charge minorities higher prices.
  • Compensation for black and Latino retail customers who improperly received subprime or "Alt-A" loans in 2004.
  • Implementation of a $3 million consumer education program consisting of statewide seminars and individualized counseling. The seminars will target minority consumers and will educate participants 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 seminars will be conducted in English and Spanish by an independent entity and will not involve the sale or promotion of any Countrywide products.
  • Improved disclosure about the advantages, disadvantages, and relative costs of different mortgage products and features.
  • Extensive and updated fair lending training for loan officers.
  • Detailed reporting to the Attorney General’s office to ensure compliance with the agreement and track Countrywide’s progress in meeting its fair lending goals.
  • Payment of $200,000 to the State for the cost of the investigation.

This agreement marks the first settlement of a regulatory inquiry arising out of disclosures made pursuant to recent HMDA regulations. Those regulations require lenders to disclose the race and ethnicity of consumers who received high-cost loans. After these data were released for the first time in 2005, the Attorney General’s Civil Rights Bureau directed inquiries to several lenders whose data revealed that blacks and Latinos were substantially more likely to receive high-cost loans. While Countrywide cooperated fully with the Attorney General’s inquiry, a number of others – including HSBC, JP Morgan Chase and Wells Fargo – refused to do so. A coalition of those banks, joined by their federal regulator, the Office of the Comptroller of the Currency ("OCC"), went to federal court to obtain an order enjoining the Attorney General’s probe of these troubling disparities. This matter is currently on appeal.

"While OCC continues to fight to shield nationally-chartered banks from state enforcement of fair lending and consumer protection laws, my office has focused on developing new and effective methods to ensure that minority customers receive fair and equal treatment," 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."

The Countrywide case was handled by Assistant Attorneys General Brian J. Kreiswirth and Jeffrey K. Powell, under the supervision of Natalie R. Williams, Chief of the Civil Rights Bureau.

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