Lending Lawsuit

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The Federal Government Has Found That Discrimination Was Pervasive In Subprime Mortgage Lending During 2000 through 2007

Text of Lending Lawsuit

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    IN THE UNITED STATES DISTRICT COURT

    FOR THE NORTHERN DISTRICT OF ILLINOIS

    EASTERN DIVISION

    __________________________________________

    COUNTY OF COOK, )

    )

    Plaintiff, )

    )

    v. ) CIVIL ACTION NO.: 1:14-cv-2280

    )

    BANK OF AMERICA CORPORATION, ) COMPLAINT

    BANK OF AMERICA, N.A., COUNTRYWIDE )

    FINANCIAL CORPORATION, )

    COUNTRYWIDE HOME LOANS, INC., )

    COUNTRYWIDE BANK, FSB, )

    COUNTRYWIDE WAREHOUSE LENDING, )

    LLC, BAC HOME LOANS SERVICING, LP, )

    MERRILL LYNCH & CO., INC., MERRILL )

    LYNCH MORTGAGE CAPITAL INC., AND )

    MERRILL LYNCH MORTGAGE LENDING, )

    INC., )

    )

    Defendants. )

    Table of Contents

    Introduction ...3

    Jurisdiction & Venue .....7

    Parties ........7

    I. Background Facts .... 13

    A. The Federal Government Has Found That Discrimination Was Pervasive In

    Subprime Mortgage Lending During 2000 through 2007....13

    B. Congress Has Found That Predatory and Discriminatory Lending Caused

    the Foreclosure Crisis...............17

    C. The Predatory, Subprime and High Cost, Mortgage Lending and

    Securitization Activities of Defendants and other Industry Participants Caused

    Case: 1:14-cv-02280 Document #: 1 Filed: 03/31/14 Page 1 of 142 PageID #:1

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    the U.S. Financial Crisis and the Subsequent Economic Collapse..23

    D. The Foreclosure Crisis Has Disparately Impacted Minorities.......27

    II. Defendants' Discriminatory Actions And Other Wrongful Conduct.... 29

    A. Defendants Knowingly & Intentionally Engaged In Predatory &

    Discriminatory Mortgage Lending & Servicing To Drive Revenue Growth & Fuel

    Their Profitable Securitization Operations ......29

    1. Defendant Countrywide Publicly Admitted Targeting Minorities

    For Subprime and High-cost Mortgage Lending to Drive Countrywide's

    Growth .....37

    2. Defendants Bank of America Targeted Minorities For Predatory

    and Discriminatory Subprime and High-cost Lending to Drive Revenue

    and Earnings.........44

    3. Defendant Merrill Lynch Funded Predatory and Discriminatory

    Subprime and High Cost Mortgage Lenders to Drive Growth, Revenue

    and Earnings In Its Own Residential Mortgage Backed Securities

    Activities .........48

    B. Defendants Discriminated Against FHA Protected Minority Borrowers In Originating and Funding Predatory Subprime and High Cost Mortgage

    Loans.. .............53

    1. The Countrywide and Bank of America Defendants Directly

    Targeted FHA Protected Minority Borrowers ....... 58

    2. Defendants Discretionary Pricing Policies Resulted in Predatory Mortgage Lending on a Discriminatory Basis........65

    3. Defendants Lowered and Circumvented Their Underwriting

    Standards and Ignored or Fostered the Fraudulent Inflation of Property

    Appraisals ...72

    a. Countrywide Loosened Underwriting Standards and

    Abused Its Appraisal Process..........75

    b. Merrill Lynch Abandoned its Underwriting Guidelines and

    Inflated Appraisals...........84

    c. Bank of America Abandoned its Underwriting Guidelines and

    Encouraged Inflated Appraisals...........89

    Case: 1:14-cv-02280 Document #: 1 Filed: 03/31/14 Page 2 of 142 PageID #:2

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    d. Defendants' Financial Incentives, Loosened Underwriting, and

    Inflated Appraisals Caused the Discriminatory and Predatory Lending

    that Harmed Plaintiff............96

    C. Empirical Data Evidences Defendants Intentional Targeting Of, And The Discriminatory Impact On, Minority Borrowers in Plaintiffs Communities......100

    D. Defendants' Predatory Mortgage Lending Disparately Impacted Plaintiff .103

    E. Defendants Predatory & Discriminatory Lending Schemes Were Concealed Through MERS and By Underreporting Minority Status In HMDA

    Data....106

    F. Defendants Passed the Risk Of Their Predatory & Discriminatory Lending Scheme Onto Others. ..............111

    G. Defendants' Mortgage Servicing & Foreclosure Practices are

    Predatory & Discriminatory...............112

    H. Defendants' Predatory & Discriminatory Mortgage Lending, Servicing &

    Foreclosure Practices Have Injured Plaintiff.............123

    III. Cause of Action (Federal Fair Housing Act) ..........132

    IV. The Bank of America Defendants are Successors in Interest to the Countrywide

    and Merrill Defendants.......................135

    Demand for Jury Trial .. 140

    Prayer for Relief .. 140

    INTRODUCTION

    1. Plaintiff, County of Cook, Illinois, brings this action pursuant to the Fair Housing

    Act, 42 U.S.C. 3601 et seq. (FHA), which protects communities (and the individuals residing

    in them) from discriminatory acts, policies and/or practices that make housing unavailable or

    establish terms and conditions in real-estate related transactions, including real estate financing

    activities, that discriminate on the basis of race or ethnicity.

    Case: 1:14-cv-02280 Document #: 1 Filed: 03/31/14 Page 3 of 142 PageID #:3

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    2. Plaintiff asserts this litigation against the collective group of Defendants named

    here because the Bank of America Defendants are legally responsible, either directly, as a control

    person or as a successor, for each of the Defendant entities they acquired or merged with.

    3. Plaintiff seeks injunctive relief to remedy, and monetary damages for,

    Defendants predatory and discriminatory residential mortgage lending and servicing activities

    that have resulted in - and will continue to cause - unprecedented numbers of mortgage loan

    delinquencies, defaults, foreclosures and/or home vacancies in Plaintiffs communities and

    neighborhoods, particularly those communities with high percentages of FHA protected minority

    residents.

    4. The foreclosure crisis was the foreseeable and inevitable result of Defendants

    (and other industry participants) intentional, predatory, equity stripping schemes that originated

    and/or funded high cost, subprime, ALT-A and certain other conforming first lien home

    mortgage loans (over 70% were for refinances, not purchases, and half of the refinances involved

    cash out) and second lien home equity mortgage loans. This lending activity enabled

    Defendants to capitalize on a relatively short-term opportunity to earn enormous fee income

    while home prices, and corresponding home equity levels, were at historical highs before the

    housing bubble burst.

    5. Defendants entire subprime and high cost mortgage lending, securitization and

    servicing operations were geared to exploit borrowers, particularly FHA protected homeowner-

    borrowers, in order to maximize their corporate profits and their managements compensation.

    6. In particular, Defendants targeted marketing practices, discretionary pricing

    policies, credit score override practices, underwriting policies, wholesale mortgage funding and

    mortgage securitization operations, compensation policies and mortgage servicing operations

    Case: 1:14-cv-02280 Document #: 1 Filed: 03/31/14 Page 4 of 142 PageID #:4

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    each individually, or in combination with each other, authorized, approved, or otherwise

    encouraged the origination and funding of first and second lien residential mortgage loans with

    different terms and conditions to similarly financially situated borrowers on the improper basis

    of race, color, ethnicity, sex and age.

    7. For example, after identifying and targeting FHA protected minority borrowers

    using advanced data mining techniques and predictive analysis methodologies, Defendants

    various mortgage origination, securitization and servicing policies and practices allowed or

    encouraged: (a) unchecked or improper credit approval decisions for minority borrowers,

    resulting in borrowers being approved for and receiving refinance and home equity loans they

    could not afford and consequently were likely to become delinquent and/or default on; (b)

    subjective surcharges on minority borrowers of additional points, fees and other credit and

    servicing costs over and above an otherwise objective risk-based financing rate for such loan

    products, increasing the likelihood of delinquencies and/or defaults on such loans; (c) minority

    borrowers to be steered into higher cost loan products, also increasing the likelihood of

    delinquencies and/or defaults on such loans; and (d) undisclosed inflation of appraisal values of

    minority residences in order to support inflated loan amounts to minority borrowers, further

    increasing the likelihood of delinquencies and/or defaults on such loans.

    8. As a result Defendants equity stripping schemes, Plaintiffs communities and

    neighborhoods with relatively higher concentrations of FHA protected minority homeowners

    have disproportionately and disparately received more of such high cost, subprime loans, and

    have been disproportionately and disparately impacted by the increased delinquencies, defaults,

    foreclosures and home vacancies resulting from such loans. Indeed, both the relative percentage

    share of such loans -- and the resulting increased levels of loan delinquencies and defaults, loan

    Case: 1:14-cv-02280 Document #: 1 Filed: 03/31/14 Page 5 of 142 PageID #:5

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    foreclosure