United States prosecutors leveled charges against Wells Fargo yesterday, claiming the bank lied about the quality of mortgages it was working with under a federal housing program. Prosecutors say Wells Fargo defrauded the government for more than a decade, issued mortgages willy nilly and then lied about their condition to the Federal Housing Administration.
The loans in question weren’t supposed to get government insurance, which was under the purview of the FHA. So when those loans went bad the FHA had to cover the losses to the tune of hundreds of millions of dollars. The Justice Department is seeking to recover that money in damages.
From the New York Times:
“Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” Preet S. Bharara, the United States attorney in Manhattan, whose office filed the lawsuit, said in a statement.
Wells Fargo says that ain’t so, insisting that it acted in good faith and did everything it was supposed to under the FHA program. A spokeswoman tells Consumerist in a statement:
“Wells Fargo denies the allegations and believes it acted in good faith and in compliance with Federal Housing Administration (FHA) and Department of Housing and Urban Development (HUD) rules. Many of the issues in the lawsuit had been previously addressed with HUD. Wells Fargo is the leading FHA lender and has acted as a prudent and responsible lender with FHA delinquency rates that have been as low as half the industry average. The Bank will present facts to vigorously defend itself against this action. Wells Fargo is proud of its long involvement in the FHA program, which has helped so many people obtain affordable mortgages and become homeowners.
The investigation that led to this action was previously disclosed in Wells Fargo’s second quarter 2012 10-Q.”
Other banks have settled civil lawsuits with the U.S. in cases also related to lending practices. Many of those have settled, including Deutsche Bank, Citigroup’s Citimortgage and Bank of America.
The complaint against Wells Fargo portrays the bank as a mortgage factory that had one goal — increasing profits and loan volumes while letting the quality of loans suffer. It claims that by hiring temporary staff to handle loans like workers on an assembly line, churning out as many FHA loans as possible, management failed by not training that staff well enough and handing out big bonuses to underwriters. All this was done to get as many FHA loans as quickly as possible, the lawsuit says.
The government adds that Wells Fargo was aware that plenty of its loans were deficient but covered it up.
U.S. Sues Wells Fargo, Accusing It of Lying About Mortgages [New York Times]