Wells Fargo & Company Sued By The U.S. Government For Mortgage Fraud

Wells Fargo & Company Sued By The U.S. Government For Mortgage Fraud
By The original uploader was Henry W. Schmitt at English Wikipedia (Transferred from en.wikipedia to Commons.) [Public domain], via Wikimedia Commons

Wells Fargo & Company (NYSE:WFC), the fourth largest bank in the United States, is facing a civil mortgage fraud lawsuit, filed by U.S. Attorney for the Southern District of New York, Preet Bharara, General Counsel, Helen Kanovsky, and  Inspector General, David Montoyo, from the Department of Housing and Urban Development. The federal government is seeking hundreds of millions in damages from Wells Fargo & Company (NYSE:WFC).

Wells Fargo & Company Sued By The U.S. Government For Mortgage Fraud

The United States government alleged that Wells Fargo engaged in a regular practice of reckless origination and underwriting, involving more than 100,000 retail FHA loans from May 2001, until October 2005.

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The complaint also alleged that the bank worsened its underwriting violations by hiring temporary, inexperienced, and under-trained staff in order to approve quickly, as many FHA loans as possible.

In addition, the federal government also claimed that Wells Fargo failed to implement proper quality control, and failed to comply with its self-reporting requirements to HUD. The bank did not report any loan with fraud or violation, until 2005, after the HUD internal review.

According to the complaint, Wells Fargo & Company (NYSE:WFC)’s self-reporting was significantly inadequate, even after the 2005 HUD review, until 2011, when the Attorney General launched an investigation against banks, and issued a subpoena for the submission of documents related to the FHA loans. The office of the Attorney General found that Wells Fargo failed to report 6,320 seriously deficient and improperly certified loans to HUD, worth approximately $190 million in FHA benefits paid on claims for defaults on loans.

In a statement, Manhattan U.S. Attorney, Preet Bharara, said, “As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting, and deficient disclosure, all while relying on the convenient backstop of government insurance… Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay.”

Earlier in October, New York Attorney General Eric Schneiderman filed a civil lawsuit against JP Morgan Chase & Co. (NYSE:JPM), and its wholly owned subsidiaries JP Morgan Securities LLC, formerly known as Bear, Stearns & Co. Inc., and EMC Mortgage LLC, for committing multiple fraud involving the creation and sale of  residential mortgage–backed securities (RMBS) on thousands of investors.

Although the allegations were committed by the subsidiaries before 2008, when the companies were not yet acquired by JP Morgan; the attorney general said the parent company is legally liable.

The Civil Frauds Unit established by President Barack Obama’s Financial Fraud Enforcement Task Force is handling the case against Wells Fargo, while the RMBS Working Group is handling the case against JP Morgan Chase.

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