U.S. Sues Wells Fargo For Fraud, Lying About Thousands of FHA Loans

The U.S. Government has filed a civil suit against Wells Fargo for reckless underwriting and fraudulent loan certification for thousands of Federal Housing Administration-insured loans under FHA’s Direct Endorsement program. The loans in question ultimately defaulted, resulting in hundreds of millions of dollars in insurance claims paid by FHA, the suit alleges. The loans in question do not include reverse mortgages.

“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. “As also alleged, Wells Fargo’s bonus incentive plan – rewarding employees based on the sheer number of loans approved – was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity.”

The suit comes following several headline cases concerning the country’s largest banks; most notably a robo-signing scandal that landed big banks facing steep fines and restitution payments totaling more than $25 billion.


After underwriting and endorsing the loans in question, the suit alleges, Wells Fargo covered up the fact that the loans were defaulting.

“Even after concerns were raised internally at the bank, Wells Fargo began self-reporting bad loans in a significant way, as required, only after this Office issued a subpoena last year,” Bharara said. “Now a jury will have to weigh the facts to determine the bank’s liability and the scope of the damages it must pay.”

The complaint filed by the U.S. Attorney for the Southern District of New York states that during the period from May 2001 to October 2005 Wells Fargo certified to HUD that more than 100,000 retail FHA loans met HUD’s requirements when a “very substantial” percentage of those loans—nearly half during certain times—did not actually qualify for FHA insurance.

Wells Fargo denies the allegations and says it acted in compliance with FHA and HUD rules.

“Many of the issues in the lawsuit had been previously addressed with HUD,” Wells Fargo said in a statement. “Wells Fargo is the leading FHA lender and has acted as a prudent and responsible lender with FHA delinquency rates that have been as low as half the industry average. The Bank will present facts to vigorously defend itself against this action. Wells Fargo is proud of its long involvement in the FHA program, which has helped so many people obtain affordable mortgages and become homeowners.”

The complaint seeks damages and penalties that could amount to hundreds of millions of dollars in insurance claims as well as damages resulting from breach of fiduciary and negligence among other charges.

“Wells Fargo has been a valued participant in the FHA-mortgage lending program,” said HUD General Counsel Helen Kanovsky. “Unfortunately, as alleged in the government’s complaint, there was a time when Wells Fargo placed profits over people, corporate results over corporate integrity, and did not consider the effect its actions would have on the FHA program as well as the overall economy. Today’s complaint and others like it are necessary, not only to deter future improper acts, but to recover damages on behalf of the FHA mortgage fund and the American taxpayer.”

*Editor’s note: This article has been updated with a statement from Wells Fargo in paragraph 7-8.

Written by Elizabeth Ecker

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  • Wells always played by its own set of rules. Right up until they exited the reverse business last year, they were approving HECMs which clearly violated FHA underwriting standards. What goes around comes around.

  • No idea what John_qpublic99 is talking about above, and I worked at WF.  Sounds like he or she may have a personal issue with WF. 

    I’m sure there was some sloppiness in underwriting during the busy times, but fraud requires intent and there is no way WF intended to defraud FHA.  Covering recourse losses on sloppily underwritten loans and fraud committed by dishonest employees is an unfortunate and ongoing cost of operating any mortgage company.

    This could be an attempt to grab attention and a continuation of Obama’s “us little guys against the big bad companies” rhetoric.  He sure knows how to stifle business and cast a cloud over the country, under the guise of “helping John Q Public”.

    • Lance,

      is that really you?  Your response sounds far too naive!  I am sure a lot of good people were surprised when they found out what their employer Enron was really doing in large segments of their business enterprises.

      Imagine this — Jeff Taylor was not involved even 2% of the business activities of Wells.  He did OK but he was not Wells Fargo.

  • Many of my earliest reverse mortgage ‘foreclosure saves’ saved people from ill-advised Wells HELOCs where the borrowers were told that they could make the monthly payments with HELOC draws with no clear disclosure that this plan is a short-term tactic with a hard end point. In all of these cases, the Wells LO’s touting the HELOCs never mentioned reverses to the borrowers. 

    You don’t to pull out an Obama sock puppet out of the conspiracy theory bag to feel some real disgust at the way these HELOC borrowers were unknowingly spending down their equity and perhaps putting themselves beyond the point at which a reverse mortgage loan funds could stop foreclosure and pay off the HELOC balance.

  •  It is notable that robo-signing have also caused lots of mistaken foreclosures before in the market. And FHA is funding those families / people that are mistaken with foreclosure by giving them assistance funds.

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