Alleging that the bank has poorly underwritten numerous mortgages based on data indicating a high number of defaulted mortgages, Manhattan U.S. Attorney Preet Bharara has filed a civil lawsuit against Wells Fargo.
Bharara, who filed the suit along with the Department of Housing and Urban Development General Counsel Helen Kanovsky and Inspector General David Montoya, stated in the filing that Wells Fargo violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
According to the lawsuit, the government is seeking financial retribution for roughly a decade’s worth of misconduct in lending, which led to millions of dollars in defaulted home loans. The Federal Housing Administration has had to pay out claims on many defaulted loans it insured during that span under the Direct Endorsement Lender Program.
“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 Bharara.
While Wells Fargo began self-reporting bad mortgages in 2011, Bharara added that the only reason the financial institution did so is because it was subpoenaed.
“Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay,” he said.
Montoya indicated that the bank should be held accountable for its improper lending practices that have gone on for years and caused numerous U.S. borrowers to suffer financial woes.
“As long as these companies fail to exercise ethical corporate responsibility to their customers and their obligations as participants in the Direct Endorsement Lender program administered by FHA, we will endeavor to investigate and hold them accountable,” said Montoya.
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The lawsuit will be overseen by the Office’s Civil Frauds Unit, which was created by Bharara in March 2010 to combat all types of financial fraud, including fraud in the mortgage industry.
Wells Fargo isn’t the only bank to be sued and have its case taken to the Civil Frauds Unit. Five other institutions have been taken to court over erroneous lending habits.
Image: Dave Dugdale, via Flickr