In what is likely one of the final major settlements between the largest U.S. mortgage lenders and the federal government concerning the faulty underwriting of mortgages in the run-up to the financial crisis, Wells Fargo will pay $1.2 billion to settle allegations brought by the Federal Housing Administration (FHA) that the bank knowingly certified that loans were eligible for FHA mortgage insurance when they were not and that it did not disclose thousands of faulty mortgage loans to the U.S. Department of Housing and Urban Development (HUD).
It is reportedly the largest settlement related to the faulty underwriting of mortgages ever reached with HUD.
According to a U.S. Department of Justice (DOJ) press release, the suit stems from Wells Fargo’s participation in the FHA Direct Endorsement Lender Program. The settlement also resolves an investigation conducted by the U.S. Attorney’s Office for the Southern District of New York regarding Wells Fargo’s FHA origination and underwriting practices, subsequent to the claims in its lawsuit, as well as an investigation conducted by the U.S. Attorney’s Office for the Northern District of California into whether American Mortgage Network, a mortgage lender acquired by Wells Fargo in 2009, falsely certified and submitted ineligible residential mortgage loans for FHA insurance.
“This settlement is another step in the Department of Justice’s continuing efforts to hold accountable FHA-approved lenders that unlawfully submitted false claims at the expense of American homeowners and taxpayers,” says Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the DOJ’s civil division, in the release. “In addition to today’s resolution with Wells Fargo, the department has pursued similar misconduct by numerous other lenders, returning more than $4 billion to the FHA fund and the Treasury and filing suit where appropriate. We remain committed to protecting the public fisc from all who seek to abuse it, whether they do business on Wall Street or Main Street.”
“This administration remains committed to holding lenders accountable for their lending practices,” adds Julian Castro, secretary for HUD. “The $1.2 billion settlement with Wells Fargo is the largest recovery for loan origination violations in FHA’s history. Yet, this monetary figure can never truly make up for the countless families that lost homes as a result of poor lending practices.”
In a statement, Franklin Codel, president of Wells Fargo Home Lending, says the settlement “resolves not only the pending lawsuit filed by the U.S. Attorney for the Southern District of New York, but also a number of other potential claims going back as far as 15 years.
“It 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,” Codel says. “We are dedicated to providing access to credit to a broad range of customers through offerings that exist today as well as new products and programs on the horizon. Wells Fargo has helped millions of people buy homes, and we will continue to meet the financing needs of the customers and communities the FHA program is intended to serve.”
Wells Fargo reports that it had already set aside the $1.2 billion for the settlement as of Dec. 31, 2015.
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