Feds Sue Wells Fargo For FHA Fraud

Posted by Orb Staff on October 10, 2012 No Comments
Categories : Residential Mortgage

12551_wellsfargo Feds Sue Wells Fargo For FHA Fraud The U.S. Attorney for the Southern District of New York and the U.S. Department of Housing and Urban Development (HUD) has filed a civil mortgage fraud lawsuit against Wells Fargo Bank.

The government's complaint seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The government alleges that the San Francisco-based lender was responsible for more than 10 years of misconduct in connection with its participation in the Federal Housing Administration (FHA) Direct Endorsement Lender Program. The lawsuit claims that, as a result of Wells Fargo's false certifications, the FHA has paid hundreds of millions of dollars in insurance claims on thousands of mortgages that defaulted.

‘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,’ says 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.

‘What's more,’ Bharara adds, ‘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. 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 lawsuit seeks $570 million, or triple the damages on approximately $190 million in insurance claims paid by FHA on more than 6,000 defaulted mortgages.

Wells Fargo issued a statement that categorically denied the charges. Calling itself a ‘prudent and responsible lender,’ the company added that ‘many of the issues in the lawsuit had been previously addressed with HUD.’

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