Wells Fargo Sued Over FHA Loans
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UPDATED: Oct 18, 2012
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Despite being arguably the strongest of the big banks, Wells Fargo is once again in regulators’ sights.
A civil suit accuses Wells Fargo of over 10 years of misconduct in regards to the Federal Housing Administration (FHA) mortgage loan program.
The bank is accused of making fraudulent insurance claims, reckless origination and underwriting of the FHA loans, deliberate concealment of loans that were rife with serious violations and having nonexistent internal controls. These mistakes have allegedly cost taxpayers hundreds of millions of dollars.
Wells Fargo is accused of having begun misconduct in 2001. From 2001 to 2005, nearly half of the FHA loans that the bank lent had not been properly underwritten, were unacceptably risky, did not meet HUD requirements or were ineligible for FHA insurance. In 2010, the bank deliberately concealed 6,320 deficient loans.
As a result, thousands of FHA loans worth hundreds of millions of dollars defaulted. The resulting write-offs and foreclosures proved costly for taxpayers.
Federal prosecutors intend to sue for three times the amount of lost money.
“Yet another major bank has engaged in a long-standing and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” said U.S. Attorney Preet Bharara, according to the San Francisco Gate.
Other government officials and civil servants have voiced their views.
“Wells Fargo has been a valued participant in the FHA-mortgage lending program. Unfortunately, there was a time when Wells Fargo 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,” said Helen Kanovsky, general counsel of the U.S. Department of Housing and Urban Development, according to San Francisco Gate.
Predictably, Wells Fargo denies the civil suit’s charges, arguing that it acted in good faith and in compliance with federal lending regulations. Wells Fargo feels that this is simply a repetition of previous allegations that had been previously addressed with the U.S. Department of Housing and Urban Development (HUD).
Aside from Wells Fargo, other banks have faced similar prosecution by the federal government. Deutsche Bank, Citigroup, Flagstar Bancorp, Bank of America, and Countrywide Financial have all received fines or litigation.
Wells Fargo is believed to be prepared for the lawsuit since, aside from its enormous wealth, it has likely set aside enough funds for a legal defense once it became aware of an investigation into its FHA loans back in August.