The settlement -- which includes an admission of wrongdoing -- is over accusations that the bank certified thousands of subpar loans as eligible for FHA insurance
The Wells Fargo settlement with the Justice Department over improper lending practices will be the largest recovery for loan originations in the history of the Federal Housing Administration, according to HousingWire. As part of the settlement, the bank admitted wrongdoing and agreed to pay $1.2 billion for certifying that loans were eligible for FHA insurance when they were not.
“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,” U.S. Attorney Preet Bharara said Friday.
According to the Justice Department, Wells Fargo – the largest HUD-approved residential lender – regularly practiced “reckless origination and underwriting” of FHA retail loans between 2001 and 2008, knowing it wouldn’t be responsible when the loans went into default.
“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. “Driven to maximize profits, Wells Fargo employed shoddy underwriting practices to drive up loan volume, at the expense of loan quality. Even though Wells Fargo identified through internal quality assurance reviews thousands of problematic loans, the bank decided not to report them to HUD. As a result, while Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.”
