Wells Fargo to pay $1.2B federal mortgage settlement
Charlotte, N.C. — Wells Fargo has agreed to resolve a long-running mortgage dispute with the U.S. government for $1.2 billion, which will cut the bank’s 2015 profit by $134 million.
The deal involves civil fraud claims brought in 2012 against the San Francisco-based bank, which the government had accused of “reckless” underwriting practices that led to thousands of federally-insured loans defaulting. The government said Wells Fargo’s false certifications that the loans met requirements for federal insurance resulted in hundreds of millions of dollars in insurance payouts.
Wells Fargo said it reached an agreement in principle on Monday with the Department of Justice, the Department of Housing and Urban Development and two U.S. attorneys in New York and California.
The settlement is expected to lower Wells Fargo’s 2015 profit to $22.9 billion.
The bank, which disclosed the accord in a securities filing Wednesday, also noted there’s no assurance that it and the government will agree on the settlement’s final terms.
In its lawsuit, the government alleged more than 10 years of misconduct by Wells Fargo related to the Federal Housing Administration’s direct endorsement lender program, where lenders are given authority to certify that mortgages meet requirements for federal insurance. If one of those loans defaults, the U.S. Department of Housing and Urban Development makes insurance payouts to the holder of the loan.
The government said Wells Fargo failed to comply with the program’s basic requirements and certified loans even though the bank knew they were ineligible for federal insurance.
Wells Fargo has previously denied the allegations and has said it believes it acted in compliance with federal rules. Wells Fargo has also argued that a landmark $25 billion mortgage settlement in 2012 involving it and other lenders addressed the civil fraud claims.