Wells Fargo Bank has agreed to pay $1.2 billion to settle federal charges that it wrongfully certified home loans as being eligible for FHA mortgage insurance when it knew that they were not.
The incidents occurred during the period from May 2001 through December 2008 and, in many cases, resulted in the government having to pay FHA claims when the loans defaulted, according to court documents.
“Today, Wells Fargo, one of the biggest mortgage lenders in the world, has been held responsible for years of reckless underwriting, while relying on government insurance to deal with the damage,” said Preet Bharara, U.S. Attorney for the Southern District of New York. “Wells Fargo has long taken advantage of the FHA mortgage insurance program, designed to help millions of Americans realize the dream of home ownership, to write thousands and thousands of faulty loans."
Bharara said Wells Fargo used "shoddy underwriting practices to drive up loan volume, at the expense of loan quality."
The settlement was approved today by U.S. District Judge Jesse M. Furman for the Southern District of New York.
“This matter is not just a failure by Wells Fargo to comply with federal requirements in FHA’s Direct Endorsement Lender program – it’s a failure by one of our trusted participants in the FHA program to demonstrate a commitment to integrity and to ordinary Americans who are trying to fulfill their dreams of homeownership,” said HUD Inspector General David A. Montoya.
Also named in the settlement is Kurt Lofrano, a Wells Fargo vice president in charge of credit risk and quality assurance during much of the time in question.