Wells Fargo Bank, N.A. has been hit with a lawsuit alleging a longstanding practice of reckless underwriting and fraudulent loan certification for thousands of FHA-insured loans that ultimately defaulted.
The governments complaint seeks damages and civil penalties for what they describe as more than 10 years of misconduct in connection with Wells Fargo’s participation in the FHA Direct Endorsement Lender Program.
The lawsuit alleges that, as a result of false certifications, FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.
According to Manhattan U.S. Attorney Preet Bharara, As the complaint alleges, 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. As also alleged, Wells Fargos bonus incentive plan ” rewarding employees based on the sheer number of loans approved ” was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity. Whats more, even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year. Now a jury will have to weigh the facts to determine the banks liability and the scope of the damages it must pay.
HUD General Counsel Helen Kanovsky said that while Wells has been a “valued participant” in the FHA-mortgage lending program, there was a time when it “placed profits over people, corporate results over corporate integrity, and did not consider the effect its actions would have on the FHA program as well as the overall economy.”
Wells is accused of widespread underwriting violations as well as failure to conduct adequate quality control. The government also alleges a failure to accurately report loan defaults.
The Complaint seeks treble damages and penalties. In addition, the United States seeks compensatory damages for breach of fiduciary duty, gross negligence, negligence, unjust enrichment, and payment under mistake of fact, for the hundreds of millions of dollars in insurance claims that HUD has paid, and expects to pay in the future, for mortgages wrongfully certified by Wells.
Last February, officials settled a civil fraud lawsuit against CitiMortgage, Inc. for $158.3 million, and Flagstar Bank, F.S.B. for $132.8 million. In May, the government settled a similar suit against Deutsche Bank and MortgageIT for $202.3 million. A federal lawsuit against Allied Home Mortgage Corp. and two of its officers remains pending. In each settlement, the defendants have admitted and accepted responsibility for certain conduct.
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