Bank of America Corporation
(
BAC
) has decided to settle the discrimination allegations brought by
the government against it. The bank was accused of being prejudiced
against disabled mortgage loan applicants.
As per the government, BofA dishonored the Fair Housing Act and the
Equal Credit Opportunity Act by asking the disabled loan applicants
to furnish invasive medical information from a medical
practitioner. The company accepted its folly and is now looking to
settle the matter.
BofA will engage an administrator to sort out 25,000 loan
applications involving income from the Social Security Disabled
Insurance (SSDI) to identify the victims. The company is willing to
shell out $1,000, $2,500 or $5,000 to entitled mortgage loan
applicants who were asked to present a letter from their doctor to
document the income they got from SSDI.
This is not the first time that BofA is facing allegations
pertaining to the violation of Fair Housing Act and the Equal
Credit Opportunity Act. In December 2011, the bank paid out $335
million to the Department of Justice (DoJ) to settle civil charges
against its Countrywide Financial unit.
The lawsuit against Countrywide stated that the company had used
discriminating lending practices against qualified African-American
and Hispanic borrowers on home loans. The Attorney General affirmed
that these minority borrowers, who qualified for traditional
mortgage rates, were pushed into subprime loans with higher
interest rates.
Similar Settlements by Other Institutions
In July 2012, the DoJ announced that
Wells Fargo & Company
(
WFC
) had agreed to pay nearly $175 million to settle civil charges
against it. The settlement agreement was filed with the U.S.
District Court in Washington, D.C. and awaits approval. The lawsuit
alleged Wells Fargo of discriminatory lending practices against
eligible African-American and Hispanic borrowers on home loans.
Moreover, some of these borrowers were dragged into subprime
mortgages.
Earlier in May, mortgage-lending unit of
SunTrust Banks Inc.
(
STI
) decided to recompense the DoJ nearly $21 million to resolve civil
charges against it. The lawsuit alleged SunTrust of discriminatory
lending practices against suitable African-American and Hispanic
borrowers on home loans.
Our Viewpoint
We believe that such settlements provide some relief to the
companies and their shareholders since these reduce litigation
overhang. However, the impact of these charges on a company's
financials and goodwill cannot be ignored.
Shares of BofA currently retain a Zacks #3 Rank, which translates
into a short-term Hold rating. However, considering the
fundamentals, we maintain a long-term 'Neutral' recommendation on
the stock.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
SUNTRUST BKS (STI): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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