Wells To Pay $1.2 Billion In Mortgage Accord
04 February 2016 - 7:02PM
Dow Jones News
(FROM THE WALL STREET JOURNAL 2/4/16)
By Emily Glazer, Aruna Viswanatha and Joe Light
Wells Fargo & Co. said Wednesday that it would pay $1.2
billion to settle a long running mortgage-lending suit by
regulators that the bank had previously vowed to fight.
The U.S. first sued Wells Fargo on the matter in 2012, accusing
the San Francisco lender 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 and low-income buyers.
The plan announced Wednesday dealt with civil charges brought by
the Justice Department, two U.S. attorneys and the Department of
Housing and Urban Development. It would be one of the largest
FHA-related settlements on record.
Regulators settled with other big U.S. banks on the FHA issues
more than a year ago. The $1.2 billion, if finalized, would be
Wells Fargo's third-largest fine, following $5.3 billion in the
industrywide 2012 National Mortgage Settlement, and $1.95 billion
in 2013 over foreclosures.
Wells Fargo, the world's largest bank by market value, hasn't
paid as many large fines for mortgage-related abuses as its peers.
In this case, however, the legal tab grew after the disintegration
in 2014 of earlier settlement talks focused on a deal worth less
than $500 million.
The latest negotiations started gaining traction late last year,
people familiar with the matter said. The price tag grew as the
investigation broadened to include more regulators and a 10-year
time frame through 2010, these people said. The Justice Department
has led the negotiations for the government.
In the talks, Wells Fargo wanted to settle as much as possible
to avoid future fines over similar topics, these people said. The
government came back with a figure around $1.5 billion and the
sides negotiated to reach $1.2 billion, the people said. Wells
Fargo executives met to discuss the settlement late last week,
people familiar with the discussions said.
The government's suit claimed Wells Fargo improperly certified
certain FHA mortgage loans for HUD insurance that didn't qualify
for the program. The government further argued Wells Fargo
shouldn't have received insurance proceeds from HUD when some of
the loans later defaulted.
The government earlier said the bank may have known that some of
the mortgages didn't qualify for the insurance, and Wells Fargo
didn't disclose those deficiencies to HUD before making the
insurance claims.
The bank had previously indicated it would fight the case and
denied the allegations when the government brought its case in
2012. It is unclear whether the bank will admit any allegations as
part of the settlement.
Last February, the bank said the long-running lawsuit would take
longer to resolve after settlement discussions fell apart, leaving
the bank "again engaged in discovery," according to a securities
filing at the time.
As a result of the tentative pact, Wells Fargo said it has added
to its legal accrual for 2015. That reduces its profit for last
year by $134 million, or three cents a share. The company's 2015
profit is now $22.9 billion, or $4.12 a share.
The FHA program backs mortgages with a down payment of as little
as 3.5% and a credit score of 580, on a scale of 300 to 850, making
it one of the most popular avenues for homeownership for first-time
home buyers and others with little wealth.
Over the past several years, the Justice Department and FHA have
sought major settlements from lenders for errors made on the loans,
using the federal False Claims Act, a Civil War-era law that allows
the government to collect treble damages. The Justice Department
also has used a savings-and-loan crisis-era law to heighten
financial penalties.
In 2014 other U.S. banks announced fines over similar issues,
including Atlanta-based SunTrust Banks Inc., Bank of America Corp.
and J.P. Morgan Chase & Co.
Some bank officials have said the government has pursued them
for huge damages even for minor errors. Partly as a result, some
major banks have pulled back from the FHA program by imposing their
own more stringent requirements on FHA loans.
(END) Dow Jones Newswires
February 04, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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