Tell us about your experiences with Marketplace. Enter To Win

Mortgage settlement hikes the cost of Countrywide

Mitchell Hartman Dec 22, 2011

Adriene Hill: News now of a huge settlement in the mortgage discrimination case against Countrywide Financial, one of the nation’s biggest subprime lenders. Countrywide is accused of charging African-American and Hispanic lenders higher fees and interest rates. Bank of America — which bought Countrywide back in 2008 — is on the hook for the $335 million settlement.

As Marketplace’s Mitchell Hartman reports, for BofA, Countrywide is the acquisition that just keeps on taking, and taking, and taking.

Mitchell Hartman: Start with that $335 million mortgage discrimination settlement. It’s just a drop in the bucket of BofA’s total cost of taking over Countrywide at the height of the financial crisis. First, BofA paid $4 billion to buy the huge subprime lender. Then, add $20 billion-or-so in settlements with investors who bought Countrywide’s toxic mortgage securities.

The bank has given $8 billion to states for their loan modification programs to struggling homeowners. And it’s bled another $13 billion in losses on its mortgage business since 2008. The total tally: at least $40 billion dollars.

So why’d BofA buy Countrywide in the first place? I asked Erik Oja, banking analyst at Standard and Poors.

Erik Oja: Bank of America wanted the Countrywide mortgage-origination network, which in hindsight was not the greatest idea. The entire housing market was falling apart. But at the time the costs of Countrywide were not known, and it was assumed at the time that the sub-prime exposure would easily be handled.

Oja says now, BofA’s only options are to keep settling, and paying out billions, or to put Countrywide into bankruptcy. He says that’s the ‘nuclear option’—but it’s too costly and risky for the bank to contemplate.

I’m Mitchell Hartman for Marketplace.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.