Three African-American mortgage borrowers from Boston accused Countrywide Home Loans Inc. of racial discrimination in a federal lawsuit yesterday, saying the nation's largest home lender charged them more for subprime mortgages than it charged white borrowers in similar financial situations.
The lawsuit, filed in US Court in Boston, contended Countrywide violated federal housing discrimination laws because the black homeowners in Boston paid higher fees to the network of agents that generate Countrywide's new customers. The company, the suit said, uses an "unchecked, subjective surcharge" that adds to the total costs of loans for its customers, and black borrowers, it contended, paid more than whites.
The suit seeks class-action status and more than $100 million to reimburse black customers of Countrywide and its subprime subsidiary, Full Spectrum Lending Inc., including about 10,000 in Massachusetts.
Countrywide denied the allegations.
"No other mortgage lender has done more to lower the barriers to homeownership among historically underserved communities than Countrywide, and we do not tolerate discrimination in any of our lending practices," the company said in a statement.
Discrimination charges have historically plagued the lending industry and are again resurfacing with the rapid increase in home loan foreclosures, especially among borrowers with subprime mortgages, many of whom are minorities.
On Wednesday, the NAACP sued a dozen subprime lenders in Los Angeles for "systematic racism," charging blacks were 30 percent more likely to pay higher interest rates than whites.
Also, earlier this year, longtime mortgage analyst James Campen, a former economics professor, released a study of 2005 lending data that concluded 70 percent of African-American and Latino borrowers with incomes between $92,000 and $152,000 bought homes with subprime mortgages in Greater Boston, compared with just 16 percent of whites.
"There's no question in my mind" the subprime industry discriminates, said Campen.
In December, the New York attorney general reached a settlement with Countrywide in which the company must monitor its lending practices to prevent discrimination against blacks and Latinos.
Gary Klein, the Boston attorney who brought this latest case against Countrywide, said yesterday that "other lenders engaged in similar practices. There's potential national exposure in the subprime lending industry for a broad pattern of discrimination."
Klein's lawsuit does not provide evidence of how Countrywide allegedly charged black customers more than whites. Instead, he intends to ask the court for internal mortgage information from Countrywide to compare lending patterns for blacks and whites in hopes of establishing a pattern of different treatment.
Countrywide made $88.5 billion last year in non prime mortgages, according to MortgageDaily.com, and was one of the nation's top subprime lenders. Countrywide sells mortgages through its own employees, independent brokers, and correspondent lenders.
Klein's lawsuit said that Countrywide has a system of discretionary fees that the loan generators are allowed to charge customers and that blacks typically end up paying more than whites. White borrowers with comparable credit ratings, Klein said, "would've gotten more advantageous" deals, on average, either in the traditional, prime market or the subprime market.
"High fees drive up the effective interest rate," he said.
One plaintiff, Gillian Miller, bought a house in Hyde Park in January 2006 with two mortgages from Countrywide for $324,000 -- both with around 11 percent annual percentage rates, which include the loans' interest rates, plus fees.
She had previously owned other homes and said she felt uncomfortable with Countrywide's financing, including what the suit said was high broker fees -- $9,423. The loan was originally arranged by Summit Mortgage and sold to Countrywide.
"I'm the type of person who pays her bills on time," said Miller, an executive assistant at an affiliate of The Phoenix newspaper. She's now having difficulty making her $1,800-plus monthly payment.
Summit Mortgage chief executive Rick Fedele said Miller's fees reflected the difficulty of getting her a mortgage, because she had no money for a down payment and the particular type of mortgage she took out did not require her to document her income.
"This has nothing to do with black and white," he said, adding, her credit was "good but it wasn't great."
The lending industry was hit with discrimination charges in the 1970s and 1980s, when banks were accused of redlining -- refusing to lend to black home buyers.
But today's focus is on independent mortgage companies and their practices of being too willing to lend to minority borrowers, in particular high-cost subprime mortgages. As a result, these high-cost mortgages are concentrated in inner-city neighborhoods such as Roxbury in Boston and immigrant neighborhoods in cities such as Lawrence.
The mortgage industry defends the use of subprime loans as allowing millions of people with less-than-stellar credit achieve homeownership.
They argue black and Latino communities have lower credit scores and incomes, on average, so the subprime industry targets minority neighborhoods -- just as manufacturers would target children to sell cereal.
"Subprime lenders have Census tract information that tells them the likelihood of a subprime borrower in a black or Latino community is higher," said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association.
Kimberly Blanton can be reached at firstname.lastname@example.org.