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Undercover Activists May Have Found Something Disturbing at Bank of America

Photo: Flickr/DonkeyHotey.

On Tuesday, Feb. 18, another U.S. agency was presented with a reason to investigate the mortgage lending practices of Bank of America Corp. (NYSE: BAC  ) : the Department of Housing and Urban Development.

A new housing discrimination complaint
The National Fair Housing Alliance announced it has filed a complaint with HUD against the bank for discriminating against prospective Latino borrowers. The nonprofit group alleges Latino customers seeking home loan services were given higher cost quotes associated with a mortgage than whites, or were ignored altogether, while white customers were pursued almost immediately.

How do they know this? Because the group organized a sort of sting operation -- sending both white and Latino individuals to one of Bank of America's Charleston, S.C., branch locations over a period of several months. The treatment of these undercover "customers" showed glaring differences based, the group maintains, entirely upon which ethnic group each person belonged to.

NFHA found prospective Latino borrowers were systematically quoted higher closing costs and monthly loan payments than their white counterparts, despite being better qualified. In one instance, a less-qualified white "customer" was showered with attention from a loan officer based upon a short interview with a branch employee -- including phone calls, emails, real estate agent referrals, and mortgage loan cost estimates. The more qualified Latina also spoke with a branch employee but was never again contacted, despite assurances that a loan officer would follow up with her.

Vestiges of redlining
There is no doubt the NFHA has targeted Bank of America, which it claims has reduced Latino market share in the region compared with its banking peers. The group has another HUD complaint pending against B of A as well, in which it charges that the bank let foreclosed homes in Latino neighborhoods go to rack and ruin, even as it kept up and marketed similar properties in more affluent white areas.

The charges are reminiscent of the practice of "redlining," in which banks and insurers -- with government approval -- avoided serving low-income minority neighborhoods throughout the country because they were considered high-risk. The Community Reinvestment Act of 1977 made this practice illegal by requiring banks to lend in all neighborhoods in which they do business.

Still, problems persist. Recently, Bank of America and peers Citigroup and Wells Fargo were sued by the city of Los Angeles, which alleged a sort of "reverse redlining" of its poorest areas during the run-up to the foreclosure crisis. The suit claims the city lost more than $1 billion through predatory lending practices, in which banks pressured borrowers from low-income neighborhoods to take on subprime loans. These homes subsequently went into foreclosure, representing lost tax revenue -- and costing the city increased security and maintenance costs.

Will Bank of America pay up? Probably. Banks generally settle these cases, ponying up millions while admitting no wrongdoing. Wells Fargo settled an NFHA suit last spring for $42 million, and B of A paid out $335 million in 2011 to settle Department of Justice charges related to breaches of fair-lending laws against minority borrowers by Countrywide. With the current charges appearing to be quite recent, however, it appears that Bank of America still hasn't learned its lesson.

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Read/Post Comments (12) | Recommend This Article (9)

Comments from our Foolish Readers

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  • Report this Comment On February 23, 2014, at 2:54 PM, Rifleman3006 wrote:

    Do you ever print anything worthwhile or does it please you to try and scrap up trash on all companies you write about? Does Motley Fool really pay you for this??

  • Report this Comment On February 23, 2014, at 10:42 PM, thomasshaddee wrote:

    I agree Rifleman3006. I'm wondering if Motley Fool ever scraped up a journalism degree for Amanda, or if she's just some liberal hack who lost her home to foreclosure and likes to take her anger out on Bank of America.

  • Report this Comment On February 24, 2014, at 12:27 AM, angreebeach wrote:

    I hate Motley Fool.

  • Report this Comment On February 24, 2014, at 2:32 PM, kooper156 wrote:

    Another hearsay pseudo news story reported on MF as fact. Amanda Alix seems to be shilling for her friends with short positions. I wonder what she gets in return.

  • Report this Comment On February 24, 2014, at 4:23 PM, mhansen94 wrote:

    I seriously doubt this. The payment amount is based on the loan amount, the loan-to value ratio, the borrower's credit score, their income and debt, the loan type (fixed vs. variable, government vs. conventional), etc. Closing costs are generally pre-set (e.g., appraisal cost, title insurance, escrow fee, etc.) Loan officers cannot "choose" higher or lower payments or closing costs for a specific buyer. If you can prove that all variables were exactly identical for the borrowers who supposedly got different estimates, then I will believe it.

  • Report this Comment On February 24, 2014, at 8:11 PM, Rifleman3006 wrote:

    To all the other posters - The folks I follow at Seeking Alpha seem to have a lot more credibility than those at MF. They give detailed analysis as to why they support or frown on the companies they follow. All I see here are re-hashed back page news stories.

  • Report this Comment On February 25, 2014, at 2:28 AM, JamesBailey wrote:

    I was a real estate agent for eight years, and dealt repeatedly with the BofA, and experiences like the one described in the article were routine. I hope someone finally nails the bank's collect gonads to the wall for their behavior.

  • Report this Comment On February 25, 2014, at 7:20 AM, frugileshopper wrote:

    Response to BOA disparate lending practices: The Mortgage lending business is not cookie cutter. Each financial scenario is uniquely different as are the applicants. I seriously doubt what is being alleged. Further, the branch personnel stand to receive incentives for referrals that result in a sale to a mortgage lender, therefore, they will be highly engaged to keep the customer interested long enough for the mortgage lender to reach the customer. Sometimes, there is an overload of interest and a limited amount of time to do so.

  • Report this Comment On February 25, 2014, at 8:28 AM, Jonesy wrote:

    Clearly, Amanda knows nothing about banking or how loan qualifications work... this story is bogus.

  • Report this Comment On February 25, 2014, at 8:57 AM, fingerlakes54 wrote:

    Big banks are for people who think bigger is better. It seems they aren't. It used to be national pride to be home of the worlds biggest banks--but no more. We just have bigger problems.

  • Report this Comment On February 25, 2014, at 11:06 AM, madrid12 wrote:

    This is very true! I worked for Bank of America for many years as a Personal Banker and I am also a Realtor.

  • Report this Comment On February 27, 2014, at 2:18 AM, BrainyMoyneyman wrote:

    If BOA DID this ... I hope they get the member sued off their ship.

    BUT, my beloved Latinos and Latinas ... THEY DID YOU A FAVOR.

    It may be hard to convince ANY JUDGE that NOT getting a mortgage with these thieves was anything but a blessing.

    Even a cardboard box on the downtown newsstand would be better than dealing with these thieves.

    Buen vida.

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Foolish financial writer since early 2012, striving to demystify the intriguing field of finance -- which, contrary to popular opinion, is truly what makes the world go 'round.

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