US Files Civil Mortgage Fraud Lawsuit Against Wells Fargo

Wells FargoBy Rick Rothacker and Aruna Viswanatha

The U.S. government filed a civil mortgage fraud lawsuit on Tuesday against Wells Fargo & Co (WFC), the latest legal volley against big banks for their lending during the housing boom.

The complaint, brought by the U.S. Attorney in Manhattan, seeks damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct related to government-insured Federal Housing Administration loans.

The lawsuit alleges the FHA paid hundreds of millions of dollars on insurance claims on thousands of defaulted mortgages as a result of false certifications by Wells Fargo, the fourth-biggest U.S. bank as measured in assets.

"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," said Manhattan U.S. Attorney Preet Bharara.

The bank denied the allegations and said in a statement it believes it acted in good faith and in compliance with FHA and U.S. Department of Housing and Urban Development rules. It said it has previously disclosed the investigation and will vigorously defend itself.

Bharara's office has brought similar cases in the past year, including one against Citigroup Inc (C) unit CitiMortgage Inc, which settled the case for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case.

The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's (BAC) Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations.

The Wells Fargo case is brought under the False Claims Act, which gives whistleblowers incentives to report fraud against the government, and under FIRREA, a little-used statute that has grown in popularity in the past year.

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Greedy banks like this should pay the price

October 13 2012 at 7:51 AM Report abuse rate up rate down Reply

While I am not defending some of the scandalous practices by some banks during this time, it was the federal govenments policies that nearly forced them to make bad loans or face severe punishments. Now, ironically the state and federal govenments are sueing them for making these same loans. I guess you are damned if you do and damned if you don't.

October 10 2012 at 9:59 AM Report abuse -1 rate up rate down Reply
2 replies to lchap17156's comment

Where is your proof the government forced these banks to make such loans? Just because these lies were told on Fox doesn't make them true. I know George Bush wanted to jump start the economy after 9/11 so he wanted more loans made to lower income people but how did he or any other president force the banks to do anything?

October 12 2012 at 1:54 PM Report abuse rate up rate down Reply

That's not what happened. The banks made these sub-prime loans because, on paper, they are much more profitable than prime loans. The banks registred very high, fictitious, profits on which the bonuses were calculated. It was fraud, from begining to end, designed to enrich the executives.

October 12 2012 at 2:30 PM Report abuse rate up rate down Reply

Many want to blame government for absolutely everything. I think people should take a closer look at the major banks.

October 09 2012 at 10:23 PM Report abuse +4 rate up rate down Reply