Wells Fargo to pay $1.2 billion over bad government-backed mortgages


Wells Fargo "engaged in a regular practice of reckless origination and underwriting" of Federal Housing Administration loans, prosecutors alleged.
(Ben Margot / Associated Press)


James Rufus Koren Contact Reporter


Wells Fargo will pay $1.2 billion to settle claims that it duped the federal government into insuring thousands of risky mortgages in the years leading up to the housing crash, the San Francisco banking giant reported early Wednesday.

If approved by a federal judge, the settlement would close the books on a 2012 lawsuit that the government filed against the bank over bad loans backed by the Federal Housing Administration. It's one of the biggest fines paid by Wells Fargo related to the crash.


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Prosecutors alleged the bank "engaged in a regular practice of reckless origination and underwriting" of FHA loans, which are backed by federal insurance and aim to help first-time home buyers.

Between 2001 and 2005, prosecutors said, the bank issued thousands of loans that did not meet FHA requirements. They also said that between 2002 and 2010, the bank violated federal reporting requirements to keep problem loans under wraps.

When many of those loans later went bad, the FHA paid hundreds of millions of dollars in insurance claims, even though those loans never should have been FHA insured, according to the suit.

Wells Fargo reported the settlement Wednesday morning in a filing with the Securities and Exchange Commission, noting that the deal has not been finalized. Bank spokeswoman Catherine Pulley said she could not provide additional details.

Other big banks, including Bank of America and JPMorgan Chase, have settled similar suits in the last few years. And, like Wells Fargo, they've cut back on FHA lending, saying it invites too much risk of legal entanglements.

Although borrowers with credit scores as low as 580 out of 850 can qualify for FHA loans, in the last few years big banks have been willing to make FHA loans only to borrowers with higher scores.

At a September investor conference, John Shrewsberry, Wells Fargo's chief financial officer, said the bank did not want to make FHA loans to riskier borrowers.

"Those are the loans that are going to default, and those are the defaults we are going to be arguing about 10 years from now," he said.

http://www.latimes.com/business/la-f...203-story.html