Countrywide Financial overcharged more than 200,000 black and Hispanic borrowers for their mortgages. The reason? The insatiable hunt for profit.
Economic racism is a slippery thing in 2011. It's not out in the open, like a "whites only" sign above a lunch counter. And it's not explicit, like the deed to a house barring its sale to blacks or Jews.
Instead, it's submerged. It lives in patterns of discrimination hidden within reams and reams of hard to analyze data. It's not necessarily driven by animus or hate. Sometimes it's just a product of garden-variety greed.
For proof, direct your attention to the record-setting settlement announced this week between the Justice Department and Bank of America over the mortgage lending practices of Countrywide Financial. The bank agreed to pay $335 million dollars to settle claims that, at the height of housing boom, Countrywide routinely discriminated against blacks and Hispanics by charging them higher interest rates and fees than equally qualified white customers.
The 45-page complaint that accompanies the settlement may be one of the most extensive studies of housing discrimination ever completed in this country. The court papers outline what Justice investigators found when they analyzed 2.5 million mortgages Countrywide issued between 2004 and 2008. Bank of America, which bought the enormous mortgage lender in 2008, has not admitted or denied any of the government's alleged facts.
Here is the ugly story made brief. According to Justice, Countrywide overcharged more than 200,000 black and Hispanic borrowers for their loans. About 10,000 were sold risky subprime mortgages, even though their finances were good enough to qualify for cheaper prime rates. Black customers who obtained their mortgages through a Countrywide-affiliated broker were more than twice as likely to get a subprime loan than similar white borrowers. In some markets, they were as much as eight times more likely.
The government argues that Countrywide's internal data monitoring should have tipped management off that discrimination was occurring. But the company did nothing until 2008, when regulators forced its hand. At that point, it only compensated a small number of the customers who had been cheated.
We can't know the motives of each and every Countrywide employee responsible for such a systemic failure. But we can know the circumstances they were working under. In those circumstances, discrimination was profitable.
Countrywide's employees were paid extra commissions to hand out more expensive mortgages. Brokers could earn fatter fees for convincing borrowers to take out an exotic subprime loan than for a plain-vanilla 30-year-fixed mortgage. And of course, the more borrowers paid in interest and fees, the more money Countrywide made.
Everyone involved with the company, from the executives on down, had an interest in hawking the most expensive loans they could. And sadly, minorities were the go-to targets for that kind of predatory lending. For years, black and Hispanic families in America had minimal access to credit. As Ellen Schloemer of the Center for Responsible Lending explained to me, that meant many of them had scant familiarity with complicated financial transactions, such as taking out a mortgage. During the housing bubble, their inexperience made them an easier mark for unscrupulous lenders, especially if they spoke little English.
It shouldn't be a surprise then that two-thirds of the victims Justice identified were Hispanic.
Greed fueled a system that created a pattern of racial bias. No, it's not as overt as old fashioned "redlining," where bank executives flatly refused to lend in black neighborhoods. But that doesn't minimize Countrywide's actions. It makes them more insidious, because they're harder to detect.