Assistant U.S. Attorney General Thomas E. Perez condemned the lending practices of the former Countrywide Financial Corporation while announcing a consent order providing for $335 million in relief for its victims and a process to identify and compensate those individuals.   

The settlement was filed by the U.S. Justice Department (DOJ) on Wednesday in the Central District court of California and is subject to court approval. The DOJ says it's the largest settlement in history over residential fair lending practices and was actually reached with Bank of America which purchased Countrywide in 2008.  Perez mentioned the Bank only in passing in his remarks.   

The suit leading to the settlement alleged widespread abuses of minority borrowers and a consistent practice by Countrywide of targeting communities of color during the housing boom.  Perez said that a qualified African-American or Hispanic who went to the company for a loan likely paid more simply because of the color of his skin.  These minority borrowers were also "far more likely to be steered into an expensive and risky subprime loan than a similarly-qualified white borrower."

Perez said that the investigation was one of the most extensive ones in the Department's history, involving data on over 2.5 million loans and their borrowers' creditworthiness.  The Federal Reserve and the Office of Thrift Supervision also played a role in the investigation. The complaint identified more than 200,000 borrowers, two-thirds Latino and the remainder African-American. 

The Assistant AG said that Countrywide "understood marketing and how to build trust.  'Se habla espanol,' they said in Latino communities, and two-thirds of our victims are Hispanic.    But as our complaint outlines, they exploited that trust.  It was Countrywide's business strategy, the complaint alleges, to target local African-American and Hispanic markets in order to expand its lending and ultimately gain market dominance in making residential loans in those communities.

"But once those borrowers walked in Countrywide's door, they did not receive fair and equal terms, they received discriminatory terms.   And chances are the victims had no idea they were being victimized.    They were thrilled to have gotten a loan and realized the American dream.   They had no idea that they could have, and should have, gotten a better deal.  This is discrimination with a smile."  

That Countrywide allowed its mortgage brokers and employees to place a loan applicant in a subprime loan even when the applicant qualified for a prime loan goes to the heart of some of the most harmful practices during the subprime boom, Perez said.   "As a result of these policies and practices, the odds of an African-American or Hispanic borrower receiving a subprime loan instead of a prime loan were more than twice as high as those for similarly-situated non-Hispanic White borrowers.   More than 10,000 Hispanic and African-American borrowers were placed into subprime loans even though non-Hispanic White borrowers who had similar credit qualifications were placed into prime loans."   

The complaint specifically alleges that, from 2004 to 2008 Countrywide engaged in a nationwide pattern or practice of discrimination based on race or national origin.  DOJ alleges three different race or national origin claims, as well as a fourth claim based on marital status discrimination.  The latter claim alleges that spouses who were not applicants on a loan were required to sign away rights to their home before the spouse could obtain the loan.  

"Hispanic and African-American borrowers who were steered into subprime loans paid, on average, tens of thousands of dollars more for their loans and were subject to possible prepayment penalties, increased risk of credit problems, default, and foreclosure, and the emotional distress that accompanies such economic stress."

Angelo Mozilo, Countrywide's founder and former CEO was fined $22.5 million by the Securities and Exchange Commission last year and agreed to pay an additional $45 million in disgorgement of ill-gotten gains.  The amounts, said to be the largest penalty every paid by an executive of a public company, were for a claim of disclosure violation and insider trading.