Wells Fargo to Pay $1.2 Billion Over Faulty Mortgages -- 2nd Update
04 February 2016 - 1:41AM
Dow Jones News
By Chelsey Dulaney
Wells Fargo & Co. said Wednesday that it has agreed to pay
$1.2 billion to settle a long-running suit that accused the company
of "reckless" lending and leaving a federal insurance program to
pick up the tab.
The U.S. sued Wells Fargo in 2012, accusing the U.S. mortgage
lender of engaging in "regular practice of reckless origination and
underwriting" of government-backed loans. The action was one of
several brought under the Federal False Claims Act against lenders
accused of bilking the Federal Housing Administration, which has
historically backed loans to first-time buyers and those with low
incomes.
The parties have been in settlement talks for a number of years
and an earlier settlement deal worth less than $500 million fell
apart in 2014, The Wall Street Journal previously reported.
The government's suit claimed Wells Fargo improperly certified
certain FHA mortgage loans for U.S. Department of Housing and Urban
Development insurance that didn't qualify for the program. The
government further argued Wells shouldn't have received insurance
proceeds from HUD when some of the loans later defaulted.
The government said the bank may have known that some of the
mortgages didn't qualify for the insurance to begin with, and Wells
Fargo didn't disclose those deficiencies to HUD before making the
insurance claims.
The agreement settles civil charges with the U.S. Justice
Department, two U.S. attorneys and the Department of Housing and
Urban Development. The government said the loans in question were
made under the Federal Housing Administration lending program from
2001 to 2010.
Wells Fargo had previously indicated it would fight the case and
denied the allegations when the government brought its case in
2012.
Last February, the bank said the long-running lawsuit would take
even longer to resolve after settlement discussions fell apart,
leaving the bank "again engaged in discovery," according to a
securities filing at the time.
The discussions almost came to a resolution in summer 2014 when
Wells Fargo was in negotiations with the U.S. attorney's office on
a settlement for under $500 million, people familiar with the
matter have said. But the Justice Department asked the bank for
additional evidence, effectively delaying the talks, the people
added.
As a result of the settlement, Wells Fargo said it has added to
its legal accrual for 2015, which it reported results for on Jan.
15. That has reduced its profit for last year by $134 million, or 3
cents a share.
The company's 2015 profit is now $22.9 billion, or $4.12 a
share.
Wells Fargo noted that the settlement isn't yet finalized.
Shares, which are off 11% so far this year, edged up 0.8%
premarket.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
(END) Dow Jones Newswires
February 03, 2016 09:26 ET (14:26 GMT)
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