Reuters is reporting that Wells Fargo Co has agreed to pay a record $1.2 billion to resolve a dispute with the Justice Department over mortgages it falsely claimed were eligible for Federal Housing Administration (FHA) insurance. The settlement in the case U.S. v. Wells Fargo Bank NA, U.S. District Court, Southern District of New York, also resolves claims against a former Wells Fargo vice president, Kurt Lofrano and a federal probe in California of loan originations by American Mortgage Network LLC, which Wells Fargo bought in 2009.
Reuters says that in court papers filed with the Manhattan federal court the company “admits, acknowledges, and accepts responsibility” for falsely certifying that thousands of the home loans it originated during a period extending from 2001 to 2008 qualified for FHA insurance. Wells Fargo also admits that from 2002 to 2010 it “failed to file timely reports on several thousand loans that had material defects or were badly underwritten, a process that Lofrano was responsible for supervising.”
The Justice Department maintained that the bank’s actions led to substantial losses for taxpayers when the FHA had to pay insurance claims when borrowers defaulted on the loans.
U.S. Attorney Preet Bharara in Manhattan called the settlement a reproach for “years of reckless underwriting” by the bank and said in a statement, “While Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.”
This is just the latest in a long series of settlements between the U.S. government and many of the country’s largest banks over risky loans written in the several years prior to the housing meltdown in 2008. The Wells Fargo settlement is the largest in FHA history over such infractions and the company stated in February that the settlement would reduce its previously reported 2015 profit by $134 million, to account for extra legal expenses.
Franklin Codel, president of Wells Fargo Home Lending, in a statement said the settlement “allows us to put the legal process behind us, and to focus our resources and energy on what we do best — serving the needs of the nation’s homeowners.”