U.S. Sues Wells Fargo For Fraud, Lying About Thousands of FHA Loans

The U.S. Government has filed a civil suit against Wells Fargo for reckless underwriting and fraudulent loan certification for thousands of Federal Housing Administration-insured loans under FHA’s Direct Endorsement program. The loans in question ultimately defaulted, resulting in hundreds of millions of dollars in insurance claims paid by FHA, the suit alleges. The loans in question do not include reverse mortgages.

“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,” said Manhattan U.S. Attorney Preet Bharara. “As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.”

The suit comes following several headline cases concerning the country’s largest banks; most notably a robo-signing scandal that landed big banks facing steep fines and restitution payments totaling more than $25 billion.

After underwriting and endorsing the loans in question, the suit alleges, Wells Fargo covered up the fact that the loans were defaulting.

“Even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year,” Bharara said. “Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay.”

The complaint filed by the U.S. Attorney for the Southern District of New York states that during the period from May 2001 to October 2005 Wells Fargo certified to HUD that more than 100,000 retail FHA loans met HUD’s requirements when a “very substantial” percentage of those loans—nearly half during certain times—did not actually qualify for FHA insurance.

Wells Fargo denies the allegations and says it acted in compliance with FHA and HUD rules.

“Many of the issues in the lawsuit had been previously addressed with HUD,” Wells Fargo said in a 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 complaint seeks damages and penalties that could amount to hundreds of millions of dollars in insurance claims as well as damages resulting from breach of fiduciary and negligence among other charges.

“Wells Fargo has been a valued participant in the FHA-mortgage lending program,” said HUD General Counsel Helen Kanovsky. “Unfortunately, as alleged in the government’s complaint, there was a time when Wells Fargo placed profits over people, corporate results over corporate integrity, and did not consider the effect its actions would have on the FHA program as well as the overall economy. Today’s complaint and others like it are necessary, not only to deter future improper acts, but to recover damages on behalf of the FHA mortgage fund and the American taxpayer.”

*Editor’s note: This article has been updated with a statement from Wells Fargo in paragraph 7-8.

Written by Elizabeth Ecker

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please