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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Nov 9, 2012

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In an unsurprising move, Wells Fargo is pushing for the dismissal of an FHA loan-related lawsuit that was filed by federal attorneys in New York. The bank alleges that it was exonerated of any liability in the pending lawsuit since it had settled another lawsuit several months earlier in April after a massive investigation by federal and state officials into alleged lending abuse.

According to the LA Times, the new lawsuit in New York seeks hundreds of millions of dollars from Wells Fargo as compensation for the bank falsely certifying thousands of mortgages for Federal Housing Administration insurance eligibility over a ten year period.

FHA loans have the benefit of being insured by the government, which means that in the event of a default the federal government repays the lender of the mortgage. These mortgages tend to have lower interest rates and smaller down payments as a result of the government insurance since it lessens risk to lenders.

Wells Fargo believes that this latest lawsuit in New York violates the earlier settlement from April which resulted in the bank paying the government $5 billion. Part of that settlement between the bank and the federal government stipulated that Wells Fargo would be free from additional lawsuits dealing with FHA loan and mortgage abuse.

According to the LA Times, the bank stated in its legal filings that its previous settlement should have “wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its Federal Housing Administration…mortgage loan portfolio.”

The settlement that Wells Fargo had made in April was part of a joint operation led by an alliance of 49 state attorneys general along with the Justice Department. The joint investigation found that Wells Fargo, along with the other five biggest home lenders in the US, had automatically approved foreclosures for many mortgages across the country that should not have been foreclosed upon. Subsequently many borrowers lost their homes around the country prompting a concerted effort amongst regulators and government officials to seek out the abusive banks responsible.

Hoping to swiftly stop the legal proceedings, Wells Fargo’s attorney, Douglas Baruch, asked Judge Rosemary Collyer of Washington D.C. to drop the pending lawsuit in New York. Judge Collyer is the same judge that approved the April settlement between Wells Fargo and the federal government.

Baruch argued that any new claims of FHA loan abuse against Wells Fargo can only involve individual mortgages in instances when underwriters abused the FHA qualification process. He also argued that the pending lawsuit claims Wells Fargo abused certain FHA loan guidelines but that the April settlement exonerates the bank from being sued for these abuses once more. Wells Fargo is seeking an order from Judge Collyer—and possibly other judicial officials—to bar the government from pushing for claims in the new lawsuit. Government attorneys intend to oppose the motion and press on with the FHA loan lawsuit.