Wells Fargo sued for mortgage fraud
The U.S. Attorney in Manhattan filed a mortgage fraud lawsuit against Wells Fargo Bank Tuesday, alleging that the bank's "reckless loan origination" cost the government hundreds of millions of dollars in federal insurance payments.
At the heart of the complaint are Federal Housing Administration guarantees that cover mortgage loan losses on FHA-insured loans, as long as a series of underwriting guidelines are met. The government's complaint charges that the bank hid evidence of its failure to meet the requirements of the insurance program, in order to issue an increasing volume of government-insured loans. That would ensure that the bank would profit, while the government suffered the losses that the bank's shoddy underwriting caused.
"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," said Manhattan U.S. Attorney Preet Bharara in a prepared statement.
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Wells Fargo spokeswoman Mary Eshet denied the allegations in a written statement, saying that the bank believes it acted in good faith and in compliance with housing laws and regulations. The investigation that led to the suit was disclosed in Wells Fargo's second-quarter financial statements, filed with the Securities and Exchange Commission, she said.
This financial statement lists several pending legal actions and investigations that Wells Fargo estimated could cost the bank as much as $1.2 billion.
The U.S. Attorney did not specify exact damages, but said the government's losses amounted to "hundreds of millions" of dollars and the relevant law allows the government to seek triple damages.
