Feds hit Wells Fargo with mortgage-fraud suit

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

Study: Student loans went to people who couldn't repay

WASHINGTON – Risky lending caused private student loan debt to balloon in the past decade, leaving many Americans struggling to pay off loans that they can't afford, a government study says.

Private lenders gave out money without considering whether borrowers would repay, then bundled and resold the loans to investors to avoid losing money when students defaulted, according to the study, which is being released today.

Those practices are closely associated with subprime mortgage lending, which inflated the housing bubble and helped bring about the 2008 financial crisis.

"Subprime-style lending went to college, and now students are paying the price," said Education Secretary Arne Duncan, whose department produced the report with the Consumer Financial Protection Bureau.

Duncan said the government must do more to ensure that people who received private loans enjoy the same protections as those who borrow from the federal government.

Student loans fall into two main categories: Loans directly from the government and those offered by banks and other private financial companies. The report focused on private student loans, which spiked from $5 billion in loans originated in 2001 to more than $20 billion in 2008. After the financial crisis, as lending standards tightened, the market shrank to $6 billion in 2011.

American consumers still owe more than $150 billion in private student loan debt, the study said. Including federal loans, Americans now owe more than $1 trillion in student loan debt, according to the CFPB. It has surpassed credit card debt as the biggest source of unsecured debt for U.S. consumers.

Private student loans are riskier than federal loans, the study said. They often carry variable interest rates, which can cause monthly payments to rise unexpectedly. Federal loans offer fixed interest rates.

In many cases, if a borrower is unable to repay, federal loans can be postponed or reduced. Those options are rare for private loans, the study said.

Students often did not understand the difference between federal and private loans, the study said. That caused many to take out costly student loans when they were eligible for cheaper, safer government loans.

The study highlights a unique feature of student debt: Unlike other credit card balances and most other debt, it is nearly impossible to cancel student debt by filing for bankruptcy. That leaves many borrowers trapped, behind on loans that lenders are unwilling to modify, the study said. There are more than 850,000 private loans in default, worth more than $8.1 billion, it said.

"Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford," said Richard Cordray, director of the Consumer Financial Protection Bureau. The CFPB was created in the wake of the financial crisis to protect people against unfair loans, unexpected fees and other financial threats.

Lending standards for private student loans were loose during the credit bubble of the mid-2000s, the report said. Because private lenders marketed directly to students, bypassing school financial aid officers, schools did not review borrowers' financial needs or enrollment status. As a result, many borrowed far more than they needed to pay for tuition. The loans went to people with increasingly weak credit scores, making repayment less likely, the study said.

The head of a trade group representing for-profit colleges said in a statement that private loans sometimes are necessary for people to complete their degrees.

"These loans provide students access to higher education opportunities that they would otherwise not be able to pursue," said Steve Gunderson, president and CEO of the Association of Private Sector Colleges and Universities.

The report is based on data from nine lenders on over more than 5 million loans made between 2005 and 2011, as well as data from five nonprofit lenders. It was required under a sweeping overhaul of financial rules passed by Congress in 2010.

It said that lenders have been more careful since the financial crisis reduced the amount of credit available. For example, in 2011, more than 90 percent of private student loans required a co-signer, compared with 67 percent in 2008.

source: USA TODAY

Chinese economy grows 8.1% in Q1

(Financial Times) -- China's economy grew 8.1% in the first quarter from a year earlier, its slowest pace in nearly three years.

With Europe struggling and the U.S. recovery appearing to ebb, signs of strength from China, the world's second-largest economy, could still help allay fears of a global slowdown.

Concerns had emerged last year that the combination of weakening export demand and a slumping domestic property market would weigh on China.

Investors, many of whom had been waiting for Beijing to announce stimulus measures, had grown worried at the government's perceived inaction.

World Bank: China in 'soft landing'



But Beijing has been quietly injecting cash into the economy, encouraging banks to lend more and easing restraints on credit flows. A larger-than-expected Rmb1tn ($159bn) in new loans in March, announced on Thursday, was the latest evidence of its shift towards a moderately pro-growth stance.

A gradual, managed slowdown in the economy is exactly what China has been trying to achieve. Premier Wen Jiabao said last month that the country was aiming for 7.5% growth this year, its lowest target in almost a decade.

Although most analysts still expect it to surpass that target, the low number is an indication of the government's ambition to steer the economy towards what it sees as a slower, steadier growth pattern.

Over the past decade, the Chinese economy has been powered by the twin engines of exports and capital investment, but both are now running out of steam.

Exports have been increasing more slowly since the global financial crisis and the outlook remains bleak. As for investment, though China still needs far more spending on infrastructure from water pipes to highways, its capital goods expenditures account for nearly 50% of its economy, a level that is seen as unsustainable by many economists and officials.

Beijing's oft-stated goal has been to fire up consumption as a new engine for the economy. Along with subsidies for cars and household appliances, the government has been increasing the minimum wage to promote income growth and boost the purchasing power of ordinary citizens.

source: http://edition.cnn.com/2012/04/12/business/china-gdp/index.html?hpt=ibu_c2