Wells Fargo to Pay $1.2 Billion to Settle Mortgage Case

Wells Fargo Bank will pay $1.2 billion and admit, acknowledge and accept responsibility for certifying to the Department of Housing and Urban Development (HUD) that certain residential home mortgage loans were eligible for Federal Housing Administration (FHA) insurance when in fact they were not, resulting in the government having to pay FHA insurance claims when some of those loans defaulted.

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Wells Fargo’s Kurt Lofrano also admitted, acknowledged, and accepted responsibility in the alleged wrongdoing.

Wells Fargo was represented by William Johnson of King & Spalding in New York and Douglas Baruch and Jennifer Wollenberg of Fried Frank in Washington, D.C.

The agreement resolves the United States’ civil claims in its lawsuit, as well as an investigation conducted by the U.S. Attorney’s Office for the Southern District of New York regarding Wells Fargo’s FHA origination and underwriting practices subsequent to the claims in its lawsuit and an investigation conducted by the U.S. Attorney’s Office for the Northern District of California into whether American Mortgage Network, LLC (AMNET), a mortgage lender acquired by Wells Fargo in 2009, falsely certified and submitted ineligible residential mortgage loans for FHA insurance.

The settlement was approved today by U.S. District Judge Jesse M. Furman for the Southern District of New York.

Wells Fargo has been a participant in the Direct Endorsement Lender program, a federal program administered by FHA.  As a Direct Endorsement Lender, Wells Fargo has the authority to originate, underwrite and certify mortgages for FHA insurance.

If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder or servicer of the loan may submit an insurance claim to HUD for the outstanding balance of the defaulted loan, along with any associated costs, which HUD must then pay.

Under the Direct Endorsement Lender program, neither the FHA nor HUD reviews a loan for compliance with FHA requirements before it is endorsed for FHA insurance.  Direct Endorsement Lenders are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting.

The quality control program requirements include conducting a full review of all loans that go 60 days into default within the first six payments, known as “early payment defaults”; taking prompt and adequate corrective action upon discovery of fraud or serious underwriting problems; and disclosing to HUD in writing all loans containing evidence of fraud or other serious underwriting deficiencies. With iva you can now write off your loans.

Federal officials alleged that Wells Fargo failed to comply with these basic requirements.

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