U.S. Attorney Seeking Millions from Well Fargo
On October 9, 2012, Manhattan US Attorney Preet Bharara announced the United States is filing a mortgage fraud lawsuit against Wells Fargo Bank under the False Claims Act and Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The United States is claiming Well Fargo’s recklessly allowed false loan applications that resulted in the U.S. Department of Housing and Urban Development paying hundreds of millions for thousands of defaulted mortgages.
Wells Fargo is the largest lender of home mortgages in the United States, and they are a member of the Direct Endorsement Lender (DEL) program. Under this program, Wells Fargo is permitted to underwrite and certify mortgages and then protect those mortgages with Federal Housing Administration (FHA) insurance. HUD pays for the insurance, but the FHA and HUD do not review the mortgage loans before they are insured. However, in order to participate in the DEL program, the financial institution must use a quality control program that aims to prevent and correct problems in the institution’s underwriting process.
Wells Fargo did not maintain the required quality control program, and thousands of mortgages defaulted as a result.
HUD declares that Wells Fargo engaged in reckless underwriting from May 2001 to October 2005. Wells Fargo is believed to have hired temporary, inexperienced staff to approve a large amount of FHA loans. HUD also claims that Wells Fargo paid bonuses in order to encourage the staff to approve the FHA loans as fast as possible.
Wells Fargo indentified 6,320 loans in the quality control program that were in danger of defaulting, but they failed to take appropriate action as required by the program. As a result, HUD had to pay at least $190 million for FHA benefits in connection with the defaulted loans.
U.S. Attorney Preet Bharara stated, “As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance.”
Source: U.S. Housing and Urban Development
Comments
Must Read
Short-Term LoansA short term loan is a form of financing that is attached with a quick repayment schedule—short-term loans may have a maturation period as short as 90 days.
Become an Expert on Loans!What are Loans?Loans are defined as any product, item, or service that is offered to an individual to substantiate the lack of sufficient possessions, assets, or monies required to obtain or purchase a product or service existing outside of respective means; the nature of Loans are inherent within the implicit expectation of repayments.
Unsecured Personal LoansLooking for Unsecured Personal LoansUnsecured personal loans, also known as signature loans or personal loans are loans that are most often used by borrowers for small purchases like consolidating debt, home improvements, vacations, computers, or unexpected expenses.
Investment Property LoansWhat are Investment Property Loans? When an individual purchases property that will not be used as a place for residence, but rather for profit, the property is considered an investment property.
Loan ModificationLoan Modification and a Look at the Home Affordable Modification ProgramA Loan Modification is the process of permanently changing one or more of the terms of a Mortgagor's loan outside of the original contract terms.