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

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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

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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.

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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

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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

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foreclosure