April 11, 2016
The Department of Justice has announced a settlement in the improper lending practices case brought against Wells Fargo.
According to a DoJ press release, “…the United States has settled civil mortgage fraud claims against Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo executive Kurt Lofrano, stemming from Wells Fargo’s participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program. In the settlement, Wells Fargo agreed to pay $1.2 billion and admitted, acknowledged and accepted responsibility for, among other things, certifying to the Department of Housing and Urban Development (HUD), during the period from May 2001 through December 2008, that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when some of those loans defaulted.”
The press release states that the settlement agreement resolves the civil claims in the lawsuit brought in the Southern District of New York, “as well as an investigation conducted by the U.S. Attorneys Office for the Southern District of New York regarding Wells Fargo’s FHA origination and underwriting practices subsequent to the claims in its lawsuit and an investigation conducted by the U.S. Attorneys Office for the Northern District of California into whether American Mortgage Network, LLC (AMNET), a mortgage lender acquired by Wells Fargo in 2009, falsely certified and submitted ineligible residential mortgage loans for FHA insurance”.
The settlement isn’t the only billion dollar-plus agreement between the U.S. government and a major financial institution. In the wake of the 2008 mortgage crisis, the U.S. government has settled with Goldman Sachs, JP Morgan Chase and others.
“This settlement is another step in the Department of Justices continuing efforts to hold accountable FHA approved lenders that unlawfully submitted false claims at the expense of American homeowners and taxpayers” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Departments Civil Division. “In addition to today’s resolution with Wells Fargo, the department has pursued similar misconduct by numerous other lenders, returning more than $4 billion to the FHA fund and the Treasury and filing suit where appropriate. We remain committed to protecting the public…from all who seek to abuse it, whether they do business on Wall Street or Main Street.”
The press release also quotes the HUD Secretary on holding lenders accountable. “This Administration remains committed to holding lenders accountable for their lending practices, said HUD Secretary Julian Castro, who was quoted in the press release. He adds, “The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA’s history. Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices.”
The details in the government case against Wells Fargo include the following, as quoted from the DoJ press release. “First, between at least May 2001 and October 2005, Wells Fargo, the largest HUD-approved residential mortgage lender, engaged in a regular practice of reckless origination and underwriting of its FHA retail loans, all the while knowing that it would not be responsible when the defective loans went into default. To maximize its loan volume (and profits), Wells Fargo elected to hire temporary staff to churn out and approve an ever increasing quantity of FHA loans, but neglected to provide this inexperienced staff with proper training. At the same time, Wells Fargo’s management applied pressure on its underwriters to approve more and more FHA loans.”
Wells Fargo, as part of the settlement, has admitted to a wide variety of activities including submitting HUD certifications “stating that certain residential home mortgage loans were eligible for FHA insurance when in fact they were not, resulting in the Government having to pay FHA insurance claims when certain of those loans defaulted”.
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Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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