NEW YORK -- The U.S. attorney in Manhattan has accused Wells Fargo of defrauding a government-backed mortgage insurance program, in another major civil case brought in the wake of the housing bust and financial crisis.
The mortgage-fraud suit, filed by U.S. attorney Preet Bharara, seeks "hundreds of millions of dollars" in damages for claims the U.S. Department of Housing and Urban Development has paid for defaulted loans "wrongfully certified" by Wells Fargo.
The suit alleges the San Francisco banking giant falsely certified loans insured by the government's Federal Housing Administration.
“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," Bharara said in a statement.
Adding "accelerant to a fire," Bharara said, was Wells Fargo's bonus system that rewarded employees based on the number of loans it approved.
The lawsuit alleges the bank failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance. When Wells Fargo discovered problems with the loans, it failed to notify HUD, which administers the FHA program, as required, the suit said. The action alleges more than 10 years of misconduct.
"The extremely poor quality of Wells Fargo's loans was a function of management’s nearly singular focus on increasing the volume of FHA originations -- and the bank’s profits -- rather than on the quality of the loans being originated," Bharara's office said in a statement.
Wells Fargo denied the lawsuit's allegations, saying it acted in good faith and in compliance with government regulations.
"Many of the issues in the lawsuit had been previously addressed with HUD," Wells Fargo said in an emailed statement. "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 Wells Fargo case is the fifth such mortgage-fraud case against a major lender brought by Bharara's office.
Three of those cases settled this year: CitiMortgage Inc. for $158.3 million, Flagstar Bank F.S.B. for $132.8 million, and Deutsche Bank and MortgageIT for $202.3million. A lawsuit against Allied Home Mortgage Corp. is pending.
A separate mortgage-fraud task force led by the New York attorney general brought an unrelated lawsuit against JPMorgan Chase & Co. last week.
Wells Fargo stock fell on news of the lawsuit. The bank's share's lost 70 cents, or 2%, to $35.10 in Tuesday trading.
source: latimes.com
