Wells Fargo, the nation’s largest mortgage lender, has announced that it will pay $1.2 billion to settle claims that it misclassified some FHA loans as qualifying for federal insurance when they did not, and failed to inform housing regulators about the misclassification prior to filing insurance claims.
Wells Fargo reached the agreement with the U.S. Department of Justice, the U.S. Attorney’s offices for the Southern District of New York and Northern District of California, and the Department of Housing and Urban Development for civil claims regarding the bank’s FHA lending program from 2001 to 2010. The agreement settles a suit filed by the DOJ in October 2012 seeking damages and civil penalties under the False Claims Act.
Prosecutors alleged that Wells Fargo issued thousands of FHA loans that did not meet program requirements for minimum incomes and credit scores for borrowers. The government said that when the loans went bad, Wells Fargo kept the problem loans a secret while collecting insurance payments for defaults. According to the DOJ lawsuit, the bank’s internal review identified more than 6,500 problem loans, but only 238 of those problem loans were reported.
In 2014, JPMorgan Chase and Bank of America agreed to settlements of $614 million and $800 million respectively in connection with their FHA loan programs.
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