Wells Fargo & Co. (NYSE: WFC) is under pressure on yet one more case against it from the financial crisis. The Manhattan U.S. Attorney's office has filed a mortgage fraud lawsuit against Wells Fargo Bank seeking hundreds of millions of dollars worth of damages. This case is not over mortgage fraud itself but more specifically over fraudulently certifying loans covering more than ten years of misconduct.
Today's report is causing a move in Bank of America Corp. (NYSE: BAC) as well. As you likely recall, BofA was just as large or larger in many regions than Wells Fargo when it came to mortgages after the Countrywide acquisition. If Wells Fargo is getting hit, then it is likely that BofA will too,
Specifically, this covers Federal Housing Authority (FHA) paying out hundreds of millions of dollars in insurance claims covering thousands of mortgages which ultimately defaulted. The suit goes on to call this more of a reckless trifecta of deficient training, deficient underwriting and deficient disclosure. It also says that the Wells Fargo incentive plan encouraged employees to get rewarded based upon teh number of mortgages which were approved. Also alleged is that self-reporting of bad loans only started taking place after the subpoena was issued last year.
Also thrown in as a point of the case was that Wells Fargo allegedly certified that over 100,000 retail FHA loans met HUD's requirements so that they were eligible for FHA insurance. HUD is said to have paid out hundreds of millions of dollars in FHA benefits on claims for defaulted loans which should have never been certified.
The report claims that Wells Fargo avoided indemnification to HUD on roughly $190 million dollars in FHA benefits paid. Today's case seeks treble damages.
Wells Fargo reports earnings Friday morning and shares are now down 1.6% at $35.23 against a 52-week range of $23.19 to $36.60. BofA again slid with the report and its shares have fallen by 1.5% to $9.14 against a 52-week range of $4.92 to $10.10.
JON C. OGG