US Suit Accuses Wells Fargo of 'Reckless Trifecta' in FHA-Insured Mortgages
The U.S. government has filed a civil suit claiming Wells Fargo engaged in reckless lending, leaving the Federal Housing Administration on the hook when buyers couldn’t pay government-insured mortgages.
The suit filed by U.S. Attorney Preet Bharara claims the bank recklessly issued the mortgages and then falsely certified them as FHA worthy. The Wall Street Journal (sub. req.), the New York Times DealBook blog, the Washington Post and the Los Angeles Times have stories.
“As the complaint alleges,” Bharara said, “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.”
Wells Fargo paid bonuses to employees based on the number of loans approved, Bharara said.
Wells Fargo issued a statement saying it complied with federal rules and acted in good faith. “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 said.
In June, Wells Fargo agreed to pay $175 million to resolve a government lawsuit claiming the bank charged minority borrowers higher fees or steered them to more expensive subprime loans. The Justice Department had alleged the bank created financial incentives by sharing increased revenues from the loans with employees and mortgage brokers.
