NEW YORK (AP)
-- The federal government has sued Wells Fargo in a New York court,
accusing the nation's largest mortgage lender of misrepresenting the
quality of thousands of loans in order to be eligible for federal loan
insurance.
The lawsuit, filed Tuesday in
federal court in Manhattan, seeks to recover "hundreds of millions of
dollars" that the Federal Housing Administration paid out after
borrowers defaulted on Wells Fargo mortgage loans.
The
bank had applied for FHA insurance for the loans, meaning that if the
loans went bad, the bank could ask the government to pay for costs
associated with the defaulted mortgages. The lawsuit charges that Wells
Fargo falsely certified that some loans were eligible for government
insurance when they actually weren't.
Specifically,
the lawsuit alleges that between May 2001 and October 2005, Wells Fargo
& Co. certified that over 100,000 mortgage loans were eligible for
the insurance. But "a very substantial percentage" of those loans were
not eligible, according to the lawsuit.
Wells
Fargo denied the allegations and vowed a vigorous defense. Many of the
issues raised by the lawsuit have already been addressed with the
Department of Housing and Urban Development, it said in a statement
Tuesday. The bank also noted that it has already disclosed the issues in
its latest quarterly report.
"Wells Fargo is
proud of its long involvement in the FHA program, which has helped so
many people obtain affordable mortgages and become homeowners," the bank
said.
U.S. Attorney Preet Bharara, who
announced the lawsuit along with HUD officials, sought to portray the
bank as driven by quantity instead of quality. Bharara said that Wells
Fargo rewarded employees based on the number of loans they approved, a
practice he called "an accelerant to a fire already burning."
This marks the fifth lawsuit that the government has brought against major lenders over mortgage practices.
Wells
Fargo, based in San Francisco, is the country's fourth-biggest bank by
assets and its biggest mortgage lender. Shares fell 70 cents, or 2
percent, to finish at $35.10.
