- The government accused Wells Fargo of "reckless" lending practices during the housing market crisis, and said "pay up" to the tune of $1 billion-plus.
- The proposed settlement would put all claims against the company to rest, but Wells Fargo noted "there can be no assurance" that the agreement is final.
- Similar claims have been made against Bank of America, Citigroup and JPMorgan Chase, and they all settled -- leaving QuickenLoans more or less as the sole company still fighting this battle.
Wells Fargo has reached a tentative $1.2-billion settlement with the federal government to resolve claims that it engaged in mortgage fraud and wrongful Federal Housing Administration (FHA) loan underwriting practices in the lead-up to the 2008 financial crisis and housing market crash.
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It’s been a tough week for the San Francisco-based company, as just days ago, a California judge certified two class-action lawsuits accusing Wells Fargo of failing to meet its obligations to struggling borrowers who sought to modify their home loans.
Now, the country’s largest mortgage lender said in a Feb. 1 Securities and Exchange Commission filing that it has reached “an agreement in principle” with the Department of Justice, the U.S. Attorney’s Offices for the Southern District of New York and the Northern District of California and the Department of Housing and Urban Development to pay $1.2 billion to resolve claims related to its FHA lending program.
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The various government agencies alleged that from 2001 to 2010, Wells Fargo engaged in “reckless” mortgage origination and underwriting practices.
The government also accused the bank of failing to report more than 6,000 loans that did not meet FHA guidelines for insurance, as well as failing to properly review early payment defaults.
Photo courtesy of Wikimedia Commons/Laimerpramer.
The proposed settlement would put all claims against the company to rest, but Wells Fargo noted in its regulatory filing that “there can be no assurance that the company and the federal government will agree on the final documentation of the settlement.”
If the settlement goes through, Wells Fargo will have to reduce its 2015 profit by $134 million to account for the charge.
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Since the government first took action against Wells Fargo in 2012, the bank has maintained that it “acted as a prudent and responsible lender with FHA delinquency rates that have been as low as half the industry average.”
But Wells Fargo is not alone in facing such charges, as the government has made similar claims against Bank of America, Citigroup and JPMorgan Chase, all of which previously settled their cases to the tune of hundreds of millions of dollars.
Detroit-based mortgage lender Quicken Loans is now the lone holdout in the three-year government probe of alleged shoddy FHA loan practices.
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The company went public in the spring of 2014 with accusations that the DOJ had been trying to “strong-arm” it into a high-figure settlement.
In a lawsuit filed in federal court, Quicken asserted that it was one of the largest FHA lenders in the country with the lowest loan default rate, and that the government “cherry-picked” a small sample of 55 mortgages from the nearly 250,000 FHA loans it closed since 2007 to make its claims.
A judge dismissed the lawsuit on Dec. 31 for failure to state a claim upon which relief could be granted, but Quicken has vowed to continue its fight.
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“This temporary procedural setback does not deter Quicken Loans from exposing the truth about the DOJ’s egregious attempts to coerce unjust ‘settlements’ from its victims including Quicken Loans by using the guise of the heavy hand and power of the federal government in doing so,” said Quicken CEO Bill Emerson.
