Accused of irresponsible lending by the Federal Housing Administration (FHA), Wells Fargo has tentatively agreed to pay an enormous $1.2 billion settlement according to a regulatory filing by the lender.
From 2001 to 2010, Wells Fargo certified 100,000 FHA loans as qualifying under the Department of Housing and Urban Development’s guidelines to be eligible for FHA insurance. As reported by the New York Times, the nation’s largest mortgage lender has been negotiating with the federal government since 2012 over accusations that it improperly classified some of these FHA loans.
When some FHA-insured loans went into default, Wells Fargo received insurance proceeds to help cover the losses, but the government says the lender should not have received the money.
According to regulators, Wells Fargo knew many of the loans were misidentified and failed to notify housing regulators. The bank found 6,558 seriously delinquent loans that were not reported as required. The government asserts Wells Fargo purposely hid 6,320 of these loans.
Wells Fargo was initially sued by Preet Bharara, the United States attorney for the Southern District of New York in 2012. Bharara said the lender engaged in a “reckless trifecta” of improper training, inadequate loan underwriting, and abysmal disclosure in the government-backed loan program.
In a securities filing yesterday, Wells Fargo said an agreement was reached with the Department of Justice and the U.S. attorney’s offices for the Southern District of New York and the Northern District of California, as well as HUD. The mortgage giant will pay over $1 billion for its mishandling of the FHA loans.
Even though Wells Fargo contends an agreement has been made, the deal is not final. “There can be no assurance that the company and the federal government will agree on the final documentation of the settlement,” wrote the lender.
On Wall Street, Well Fargo’s stock price took a 1.8 percent tumble and closed Wednesday at $47.60. While down at the end of the trading day, Wells Fargo’s market value of $242.38 billion is still higher than any other U.S. based bank. The No. 2 bank, JPMorgan Chase, is hovering around $211.31 billion.
“Every quarter we rank the best-performing super regional banks, and in our most recent survey, Wells Fargo came out on top again,” said Marty Mosby, an analyst with the investment firm, Vining Sparks. “Wells Fargo is one of the great super regional banks out there.”
The bank’s share price has been quite volatile lately as rumors circulate that Wells Fargo is working on a deal to sell much of its investment-banking and capital-markets business to Switzerland-based Credit Suisse. However, Wells Fargo adamantly denies the rumor.
Wells Fargo has been hit with numerous lawsuits accusing the bank of improper practices. As reported previously by the Inquisitr, a St. Louis woman was awarded $77 million in damages after a long legal battle over the mismanagement of a large trust account.
The Wells Fargo settlement is a remnant of the financial crisis and housing bubble that is still stinging banks today. “They want to be done with these legacy settlements, they want to be able to write a check and say they are done with all that,” said Ken Thomas, a Miami-based independent bank analyst.
San Francisco-based Wells Fargo is one of the last big lenders to settle similar claims. Citigroup, Bank of America, and JPMorgan have already done so. In January, Goldman Sachs reached a tentative agreement to pay $5.1 billion after a federal and state investigation of its handling of mortgage-backed securities leading up to the mortgage meltdown of 2008.
After the settlement, Wells Fargo will need to adjust profit figures down $134 million to account for the extra legal expenses. For 2015, the bank restated its income to $22.9 billion after increasing expenses by $200 million.
[Photo by Spencer Platt/Getty Images]