Wells Fargo & Co. acknowledged of cheating the government into insuring thousands of jeopardizing mortgages lender and agreed to pay the U.S. Department Justice lawsuit $1.2 billion for settlement fees. The lawsuit was filed on Friday in a Manhattan federal court where a claim was also resolved against Kurt Lofrano who is a former Wells Fargo vice president.
The bank conceded certification of thousands of risky home mortgage loans that were qualified for Federal Housing Administration insurance. Several of the said loans were made to families who really are not eligible for them and later lost their homes, according to CNN Money.
"Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust," Manhattan U.S. Attorney Preet Bharara said in a statement. "Today, Wells Fargo, one of the biggest mortgage lenders in the world, has been held responsible for years of reckless underwriting."
The bank also admitted failure of filing timely reports on several thousand loans from 2002 to 2010 that had material defects or were seriously underwritten, which is a process that Lofrano was held accountable for supervising. The Justice Department stated that the shortfalls direct to the major losses for taxpayers when the FHA was forced to pay insurance claims as defective loans sundered.
However, Wells Fargo drew out and its payment is the biggest in FHA history in regards to loan origination violations. The agreement would also resolve an investigation by California federal prosecutors of supposed false loan certifications by American Mortgage Network LLC which was purchased in 2009 by Wells Fargo, the Huffington Post reported.
To continue joining in the FHA loan project, Wells Fargo had to inform the federal government that its loans were dependable enough to be eligible for FHA insurance.
When those loans failed to pay, the federal government will pay the insurance claims and not Wells Fargo. The case was one of several investigations the federal government revealed against large banks after the subprime mortgage crisis, as reported by Fox 13 Now.
On February 3, Wells Fargo mentioned that the settlement on Friday will lessen its formerly reported 2015 profit by $134 million, to account for extra legal expenses. Similar federal lawsuits have been settled by other several lenders including Citigroup Inc., JPMorgan Chase & Co, Deutsche Bank AG and Bank of America.
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