Wells Fargo & Co. will pay $1.2 billion to settle claims that it duped the federal government into covering thousands of high-risk mortgages in the years leading up to the home crash, the San Francisco banking giant said Wednesday.
If approved by a national judge, the books would close on a 2012 suit the authorities filed against the bank over poor loans. It is among the largest fines paid by Wells Fargo
Prosecutors alleged the bank “engaged in a routine practice of underwriting” and dangerous origination of FHA loans backed by national insurance and meant to help first-time home buyers.
Between 2005 and 2001, prosecutors said, the bank issued thousands of FHA loans that didn’t satisfy with the plan’s demands, including credit scores and minimal incomes for borrowers. Additionally they said that from 2002 to 2010, the bank violated federal reporting requirements by keeping issue loans under wraps and gathering insurance payouts when loans went bad.
Banks must report loans if they discover difficulties in their own underwriting — for instance, if a loan officer approved an FHA-backed mortgage although the borrower supplied deceptive information when applying or didn’t fulfill standards.
Reported just 238 of them. the although prosecutors said Wells Fargo inner reviews found more than 6,500 issue FHA loans from 2002 through 2010, but Prosecutors said the lax underwriting was partially the result of incentives that motivated workers to approve more loans.
The loan defaults caused the FHA to pay hundreds of millions of dollars in insurance claims to Wells Fargo to insure the losses of the bank, even though those loans must not have been guaranteed, based on the suit.
Wells Fargo reported the resolution in a filing with the Securities and Exchange Commission, noting the deal hasn’t been finalized. Bank spokeswoman Catherine Pulley said she could barely supply added details.
The bank initially fought with the national allegations, refusing them in court filings. Other large banks were faster to settle suits that are similar.
In 2014, Chase agreed to pay $614 million for submitting shoddy FHA loans and Bank of America agreed to an $800 million settlement over similar claims, part of a bigger deal with multiple national and state regulators.
Wells Fargo has paid other fines relating to issues with mortgage origination and servicing during the housing boom, including a $5.3-billion payment into a national mortgage resolution in 2012.
In the aftermath of resolutions over FHA loans, Wells Fargo and other large banks have cut back on FHA financing, saying it invites an excessive amount of danger of legal entanglements.
In the last few years large banks have been willing to make FHA loans just to borrowers with higher scores although borrowers with FICO scores as low as 580 can qualify for FHA loans.
Wells Fargo shares fell 86 cents, or 1.8%, to $47.60 on Wednesday.