State accuses Countrywide of discriminatory lending

Countrywide Home Loans is facing a $1 million fine and the loss of its mortgage business in Washington after a state agency determined that it charged minority borrowers more for its loans than it charged white borrowers in similar circumstances.

The company also could be forced to pay restitution to at least 50 borrowers the state says were victimized by the company's discriminatory pricing, according to administrative charges filed Monday by the state Department of Financial Institutions.

The action is the state's first ever fair-lending case, and could pressure the company — and possibly other lenders — to modify loan terms for state homeowners who are struggling to repay mortgages with high interest rates that are continuing to climb, said Deborah Bortner, director of DFI's consumer services division.

Countrywide sold about 80,000 mortgages in the state over the past two years, and an examination of those loans could turn up even more problem loans, she said.

"The state is not going to be able to save everyone," said Bortner, noting that some Countrywide borrowers already have lost or will lose their homes to foreclosure before the case is resolved. "If they lose their house, we'll get them restitution."

The state also alleged that Countrywide owes taxpayers nearly $5.6 million in unpaid fees for loans it sold here but did not report as required. Those loans date back to 2002, according to the state claim.

The company has 20 days to request an administrative hearing on the charges. It also can negotiate a settlement with the state.

Bortner said the state examined 600 loans that Countrywide offered or sold to state homeowners, and found 50 cases in which minority borrowers received or were offered more expensive loans than white borrowers with similar credit scores who obtained loans during the same period, in the same geographic area, for about the same loan amount.

In some cases, minority borrowers were steered to higher interest-rate loans with higher fees even when their credit scores were better than their white counterparts, she said.

The examination began with a tip last year from a federal agency that analyzed mortgage data, and provided states with a list of lenders that potentially were engaged in discriminatory lending, Bortner said.

The Department of Financial Institutions began analyzing individual loans, and identified a pattern of lending that resulted in minorities obtaining more costly loans, but did not show that they were targeted for those loans because of their race or ethnicity. Interviews conducted with homeowners showed that in some cases, homeowners were sold costly loans by a broker with the same ethnicity, Bortner said.

"The reason minority borrowers are disproportionately affected is because economics creates disproportionality," said Winona Hollins-Hauge, a member of King County's Commission on African American Affairs.

The state's action came on the heels of suits filed Wednesday by attorneys general in California and Illinois. In those cases, Countrywide was accused of tricking borrowers into costly loans they didn't understand and couldn't afford.

The company's business practices have generated about 130 complaints to the state attorney general in the past three years. The company also is being sued by an arm of the U.S. Justice Department, and by shareholders.

The company did not return a phone call for comment on Wednesday.

Kurt Eggert, a law professor at Chapman University School of Law in Orange, Calif., said states may be focusing on Countrywide because it's still in business. Unlike many of its competitors that have gone bust, the company has substantial assets and is still servicing loans, he said.

The action was filed Monday but announced Wednesday during a news conference at the Urban League of Metropolitan Seattle, which is helping borrowers so they don't lose their homes.

A. Linda Taylor, the group's housing director, said homeowners who need help can call the Urban League at 800-368-1455.

Consumers also can file complaints with the DFI online at www.dfi.wa.gov, by calling 877-746-4334, or via e-mail at CSEnforceComplaints@dfi.wa.gov.

Susan Kelleher: skelleher@seattletimes.com.