Wells Fargo To Pay $1.2B To Settle Claims It Bungled FHA-Backed Mortgages

Posted by Patrick Barnard on February 04, 2016 No Comments

Wells Fargo will pay $1.2 billion to settle a complaint brought by the U.S. Department of Justice (DOJ) that it engaged in sloppy underwriting practices on loans backed by the Federal Housing Administration (FHA) and then sold those loans on the secondary market in the run-up to the financial crisis in 2008.

The settlement resolves one of the last remaining lawsuits brought by the federal government against the major mortgage lenders over alleged faulty underwriting processes that contributed to the subprime mortgage meltdown.

Bank of America Corp., Citigroup Inc. and Deutsche Bank AG have resolved similar lawsuits over FHA-insured loans in recent years, paying hundreds of millions of dollars in fines and penalties.

The settlement reached on Feb. 1 also resolves claims by the U.S. Attorney’s Office in San Francisco and the U.S. Department of Housing and Urban Development, according to a Reuters report.

The lawsuit, filed in federal district court in Manhattan, alleges not only that the bank engaged in sloppy underwriting practices on FHA-backed loans, but that it also failed to report more than 6,000 loans from 2002 to 2010 that did not meet requirements for insurance under the FHA and failed to properly review early payment defaults, Reuters reports.

The lawsuit names Kurt Lofrano, a vice president at the bank, and states he played a “critical role” in not reporting the loans to government officials, according to Reuters. It is unclear whether Lofrano will be subjected to any penalties as an individual – however, lawyers representing Lofrano told Reuters the settlement resolves all of the allegations.

The settlement is still subject to final approval from the DOJ.

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