The annoucement of the Justice Department's settlement with Countrywide over violations of fair lending laws is a landmark victory that deserves recognition. For years, NCLR (the National Council of La Raza) has called attention to a particularly egregious form of predatory lending known as “steering.“ This practice occurs when a lender deliberately sells a subprime loan to a family even when they have good credit and qualify for a standard 30-year fixed-rate mortgage. Unscrupulous lenders and brokers would steer families to subprime loans because doing so would earn a higher profit, often for doing less work. In fact, the more toxic the loan, the higher the payoff to the lender or broker. Latino and Black homebuyers were more than twice as likely to be steered to subprime loans, even after controlling for credit and other risk characteristics. While many lenders engaged in these practices, Countrywide was the largest player in the subprime market and top lender to Latino homeowners.
The unfair and deceptive tactics perpetrated by Countrywide and other subprime lenders, fueled by Wall Street's insatiable appetite for the fees generated by risky loans, contributed directly to the foreclosure crisis that persists today. Fortunately, new protections included in the Dodd-Frank Wall Street Protection Act, if enforced, will prohibit steering going forward. But that does not do much to alleviate the harm homeowners have already suffered. An estimated 17 percent of Latino homeowners are facing foreclosure or have already lost their homes. The DOJ settlement is a critical step to delivering justice to families that may have lost their homes thanks to the actions of a predatory lender. We have every reason to expect that this is just the first in a series of enforcement actions by the Obama administration against those responsible.
For Christmas this year, I wished that justice would be served for those wrongfully foreclosed upon. Not only is it the right thing to do for harmed homeowners, but it will help turn the page on a dark decade in the mortgage industry where the quest for exorbitant profits trumped fair and responsible business practices. Accountability is a critical step to building a better mortgage market where qualified homeowners get access to fair rates and products. Bank of America deserves credit here. In the interest of full disclosure, NCLR is one of 28 members of the Bank of America National Community Advisory Council, which allows NCLR and other leaders from the community development, civil rights, and public interest fields an opportunity to raise community feedback directly with senior bank officials. But the plain truth is that after acquiring Countrywide in 2008, they immediately shut down the institution’s worst practices and eliminated toxic products such as “2/28s” and liar loans. Having never engaged in subprime lending in the first place, Bank of America has had its work cut out in turning around the huge portfolio of toxic loans it had inherited. Given what we now know about the extent of Countrywide’s deceptive lending tactics and the fact that 60 percent of these loans are held hostage by Fannie Mae and Freddie Mac, it's no surprise that Bank of America has struggled to stop the bleeding. That it was the first bank to step up to the plate and provide remedies for more than 200,000 victims of predatory lending is deserving of praise. Moreover, the settlement with DOJ has set a standard to which the rest of the industry should be held.
DOJ should continue its work to hold dishonest lenders accountable for the damage that they have done to families and neighborhoods. The settlement with Countrywide sends a strong signal to the market that unfair targeting by race, national origin, or gender will not be tolerated. But much more needs to be done. The 50 state Attorneys General and the Office of the Comptroller of the Currency are also pursuing enforcement actions. It is high time that other lenders, as well as Fannie Mae and Freddie Mac, accept responsibility for their roles in wrongful foreclosures, provide remedies to those injured, and move onto the critical business of re-establishing a healthy mortgage market.
Ensuring these critical next steps should be at the top of the list of New Year’s resolutions for everyone involved in the housing market.