Bank of America (BAC) has agreed to compensate mortgage loan applicants who alleged the bank discriminated against some borrowers who received disability income.

The U.S. Justice Department said Thursday the nation's second-largest home lender would pay $1,000, $2,500 or $5,000 to would-be borrowers who were asked to provide a letter from their doctor to document the income they received from Social Security Disability Insurance.

Bank of America agreed to hire an independent administrator to review roughly 25,000 loan applications filed between May 2007 and April 2012 to identify anyone aggrieved. That review will help determine how many consumers were harmed and how much B of A will have to pay.

The case springs from complaints filed by three mortgage applicants with the U.S. Department of Housing and Urban Development, which charged the bank with asking some borrowers for proof of their disabilities and seeking evidence their disability income continued before approving loans.

The Fair Housing Act makes it illegal to impose different qualification standards on borrowers or to inquire about the nature or severity of a disability.

"Loan applicants with disabilities should not be subjected to invasive requests for medical information from a doctor when they are applying for credit," Assistant Attorney General Thomas E. Perez said in a press release.

For its part, Bank of America denies the allegations and charges HUD with determining inconsistently whether lenders can request a doctor's note to validate the duration of a disability.

"HUD determined this policy is in compliance for its loans, yet suggests it somehow violates the Fair Housing Act for non-HUD loans," Bank of America said. "We're being accused of wrongdoing by the government for following a policy that the government approved."

In a consent decree, Bank of America says it requested a doctor's letter because of demands from regulators or investors that it document applicants' incomes sufficiently, and that it settled the lawsuit to avoid the expense of litigation.

Bank of America consented to pay the three HUD complainants a total of $125,000, and to provide additional training for its underwriters and loan officers.

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