Why the feds' Countrywide settlement settles nothing

COMMENTARY Bank of America will pay $335 million to settle federal allegations that its Countrywide unit discriminated against minorities in the years leading up to the housing crash. Does the punishment fit the crime?

Not in my book. Countrywide, the nation's largest peddler of subprime loans in the years leading up to the 2008 financial crisis, was accused of violating the Fair Housing Act and Equal Credit Opportunity Act in overcharging more than 200,000 black and Hispanic borrowers for mortgage loans. As a result, minority borrowers paid hundreds or thousands of dollars more to get a mortgage than did similarly qualified white customers. The government also said Countrywide steered blacks and Hispanics with good credit into subprime loans.

In other words, discrimination at Countrywide wasn't unusual -- it was embedded in the lender's business model. As Justice Department Assistant Attorney General Thomas Perez succinctly put it on Wednesday in discussing the settlement:

If you were African-American or Hispanic and you went to Countrywide for a loan, and you were qualified, you likely paid more simply because of the color of your skin.

In touting the settlement, Justice says it amounts to the largest residential fair-lending penalty ever. And so it is. The biggest previous such sanction was a $6.1 million fine levied against American International Group (AIG) in 2010. Victims of the Countrywide scheme will divvy up the $335 million, with some getting a few hundred dollars and others getting several thousand. That amounts to an average of roughly $1,700 per borrower.

Video: B of A settles lending bias suit for $335 million
Bank of America settles discrimination suit for $335M
How racial segregation worsened the foreclosure crisis

Here's the problem. As far as the feds are concerned, Countrywide didn't commit a "crime." In fact, the Justice Department brought no criminal, or even civil, charges against the lender. None of the company's executives are being prosecuted for conduct that Perez acknowledges "hurt entire communities." B of A is admitting no fault under the settlement, in keeping with the government's preference for striking deals with large financial players accused of wrongdoing.

This legal and ethical limbo is why U.S. Attorney General Eric Holder was careful in his remarks yesterday to underline that the charges against Countrywide remain nothing more than accusations. He said (boldface mine):

... we resolved the government's allegations that Countrywide and its subsidiaries -- which are now owned by Bank of America -- engaged in discriminatory mortgage lending practices.... These discriminatory acts allegedly included widespread violations.... These allegations represent alarming conduct....

So while the feds state unequivocally that Countrywide broke the law, the government's own legal redress for that conduct explicitly obscures the company's guilt. Sorry, but fraud alleged isn't equivalent to fraud admitted. If it were, former Countrywide CEO Angelo Mozilo might might not have disappeared into comfortable retirement despite his company illegally pushing hundreds of thousands of customers into dangerous loans.

Worse, Justice's ad-hoc pact with B of A leaves no legal line in the sand to deter other lenders from engaging in similar behavior. And as The New York Times recently showed, Wall Street firms have repeatedly flouted recent settlements with the SEC under which they agreed to stop committing fraud. Promises are made, but not kept.

Another problem with the settlement is that it only compensates minorities for having been gouged on a loan. But what about customers who lost their homes because Countrywide steered them into a pricier mortgage? Says financial pundit Yves Smith:

[G]iven the number of people involved, one has to think that there are some cases where the difference between the cost of the loan these borrowers got and the cheaper ones they qualified for could have made the difference between a borrower making it versus going into delinquency. So for any cases where the overcharges tipped a stressed borrower into a foreclosure, the settlement is clearly inadequate.

Especially considering that foreclosure rates are much higher for blacks and Hispanics than for white Americans. One reason why, according to Princeton University researchers -- racial discrimination. The housing crash and its gory aftermath isn't only a story of rampant financial fraud, it's also a tale of rampant predatory lending targeting minorities.

In negotiating a settlement with Countrywide that amounts to a small fraction of the company's profits during the housing boom, the government missed an opportunity to balance the historical ledger -- and lay down the law for other financial firms. If this case shows anything, it's that justice negotiated often amounts to no justice at all.

[gr8time2sell]

I don't agree that this has anything to do with Race or Color!! As a Single White Female, I was just as targeted by this whole con as anyone else. They really targetted upward mobile individuals that they could convice were able to afford a little bigger house by juggling the numbers. I bought my home from Ryland, of course they were Ryland Mortgage!, owned by Countrywide. Not only did the sales person convice me that I could qualify, his wife was the realestate agent making all the commissions. I sold a townhouse and put down $40K....its all gone now and then some....The interest rate was so crappy, I got scammed in 2006 to refinance to get a better rate, low and behold there was all types of hidden items from getting me in with this outstanding 1.5% rate that ended up only staying at that rate til the ARM recalculated at one year. To a negative amortized mortgaged that upon receipt of my first statement I contact Countrywide and they said there wasn't much they could do unless I had an additional 3% cash money to pay off the 3 year pre payment penalty clause that was hidden in the closing documents. Now I'm fighting with BofA to stay in my house that I've paid on since 2003. Paying the government a fine doesn't do me a damn bit of good. The bottom line is the Middle Class American is the one stuck holding the bag for the Greed of a few! If it was one company taking advantage or conning another company, the DOJ would be right on it!! But when it comes to hard working Americans, those same companies get a slap on the wrist. Oh, thats right, they are once again hanging the golden carrot in front of my face offering me $2K to turn my cheek and look the other way. This time, I think the American public needs to stand up and make their feelings be known! Don't take this lying down. Call your state Attorney General, Congressmen, Senators and let them hear your voice. That is there job, to represent the people, at least, thats what I'm doing. In the end, I know that the Lord will take issue with each and everyone of the few involved in the GREED and DECEPTION perpetrated on millions will be reckoned with. I suggest they packed alot of sun screen, they will need it where there going. 'Nor thieves nor the greedy nor drunkards nor slanderers nor swindlers will inherit the kingdom of God.' 1 Corinthians 6:10 (NIV)

[freedom8246]

Here is the True story in all of this Morgage Mess. A single mom here in Florida. Got behind on her morgage she called a re investors company. who bought her home subject to the Morgage taxes and insurance. They paid her $5,000.00 so she could find another place for her and her son. The problems began when this investment company stopped making her payments taxes and insurance which she had signed documents by them that was the offer they made her. Then after she had moved they stopped making payments letting the house go into foreclosure. She then sent a notice to appear for her court case. I being her father was also placed as a denfendant in the case. I appeared 3 different times contesting this foreclosure. Every thing feel on deaf ears. This is when This single mother Help write The Book Called What They Dont Want You To Know About Foreclosures. No she has not yet been compisated for anything. But as she watches the News and listens to others. she has seen that this true story about her problems are actually Millions of American Families Problems. Yes they are very aware of this book in Washington Dc and all across America. This should no longer be a political issue. It has now become a humanitarian issue. With the millions of Americans and thier families now having to live in the streets of America. God Bless all those families.

From The Bennington Family
3195 Montague Ave
Spring Hill Fl. 34608

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[gonzalezbonilla53]

I am one of the hispanic persons that Countrywide gave a higher interest. Now I want to know if I will receive money from the 335M they settle, how much and when. I need the money. I believe I pay double the price for the house and double the interest rate. Who can answer me?

[tramky]

Big deal. A guy in California is suing a golf course for sex discrimination because they have 'women's day' and charge a bit less for greens fees to women on that day than they do men.

The biggest problem with the mortgage crisis is the property appraisals that the banks require as a predicate for any loan--you know, those things that tell us the house is worth $440,000. Only to discover a year later that it is NOW worth $240,000. And guess whose money is the ONLY money lost in this deal? The borrower's. The banks demand for, review of, and acceptance of that $440,000 appraisal now, amazingly, has no meaning or relevance. No, no, NO! The bank lender was a party to the deal, and that includes being a party to the property appraisal. The loss of value should be shared equally between the borrower AND the lender, since it is the LENDER who sets up the rules in any case. It is nice to construct legal structure that permit you to escape the consequences of economics, but those consequences must be met by ALL parties to the deal. The bank agreed that the exemplar house was worth $440,000. Since the economy tanked because, in part, of the actions and policies of same said bank, they must contribute to the deal by dropping the principal of the loan in direct proportion to the drop in appraised value.

[tsigili]

All that did.......was force Bof A to pay the feds money, for something that Countrywide did, before the feds forced B of A to buy Countrywide, in the first place.

That's kind of like punishing the bank twice, just to allow them to buy Merrill Lynch.

How dishonest of the government, and how criminal of the DOJ!