US sues Wells Fargo over FHA-insured loan defaults

AP file photoThe federal government sued Wells Fargo Bank in New York on Tuesday

AP file photoThe federal government sued Wells Fargo Bank in New York on Tuesday

The federal government has sued Wells Fargo in a New York court, accusing the nation's largest mortgage lender of misrepresenting the quality of thousands of loans in order to be eligible for federal loan insurance.

The lawsuit, filed Tuesday in federal court in Manhattan, seeks to recover “hundreds of millions of dollars” that the Federal Housing Administration paid out after borrowers defaulted on Wells Fargo mortgage loans.

The bank had applied for FHA insurance for the loans, meaning that if the loans went bad, the bank could ask the government to pay for costs associated with the defaulted mortgages. The lawsuit charges that Wells Fargo falsely certified that some loans were eligible for government insurance when they actually weren't.

Specifically, the lawsuit alleges that between May 2001 and October 2005, Wells Fargo & Co. certified that over 100,000 mortgage loans were eligible for the insurance. But “a very substantial percentage” of those loans were not eligible, according to the lawsuit.

Wells Fargo denied the allegations and vowed a vigorous defense. Many of the issues raised by the lawsuit have already been addressed with the Department of Housing and Urban Development, it said in a statement Tuesday. The bank also noted that it has already disclosed the issues in its latest quarterly report.

“Wells Fargo is proud of its long involvement in the FHA program, which has helped so many people obtain affordable mortgages and become homeowners,” the bank said.

U.S. Attorney Preet Bharara, who announced the lawsuit along with HUD officials, sought to portray the bank as driven by quantity instead of quality. Bharara said that Wells Fargo rewarded employees based on the number of loans they approved, a practice he called “an accelerant to a fire already burning.”

This marks the fifth lawsuit that the government has brought against major lenders over mortgage practices.

Wells Fargo, based in San Francisco, is the country's fourth-biggest bank by assets and its biggest mortgage lender. Shares fell 70 cents, or 2 percent, to finish at $35.10.

newsUSUS federal governmentWells Fargo

If you find our journalism valuable and relevant, please consider joining our Examiner membership program.
Find out more at www.sfexaminer.com/join/

Just Posted

Cities including San Francisco, Oakland and Berkeley are calling for large grocery and drug store chains to pay employees hazard pay for working during the COVID-19 pandemic. (Shutterstock)
SF proposes $5 hazard pay law for grocery, drug store workers

San Francisco may soon join the growing number of cities requiring large… Continue reading

Hikers walk along a closed stretch of Twin Peaks Boulevard on Friday, Jan. 22, 2021. (Kevin N. Hume/S.F. Examiner)
SFMTA board to vote on future of Twin Peaks Boulevard

The proposal would keep Burnett Avenue gate closed to vehicles, open Portola Drive

Kindergarten teacher Jennifer Klein collects crayons from students in the classroom at Lupine Hill Elementary School on Monday, Nov. 9, 2020 in Calabasas, California. (Al Seib/Los Angeles Times/TNS)
Newsom, legislators strike deal to reopen California schools

Taryn Luna and John Myers Los Angeles Times Gov. Gavin Newsom and… Continue reading

A sign about proposed development of the bluff at Thornton State Beach in Daly City on Friday, Feb. 26, 2021. (Kevin N. Hume/S.F. Examiner)
Retreat center proposed at popular state beach

Daly City residents oppose construction on ocean bluffs

City supervisors are calling for an expansion of free summer programs for elementary age kids. (Kevin N. Hume/S.F. Examiner)
Supervisors urge city to provide free summer programs for all SFUSD students

San Francisco supervisors on Monday announced a proposal to expand summer programs… Continue reading

Most Read