U.S. Accuses Wells Fargo of Mortgage Fraud in FHA-Backed Loans

Wells Fargo defrauded the Federal Housing Administration for more than 10 years, forcing the FHA to pay hundreds of millions of dollars in insurance claims on mortgages that defaulted, U.S. officials claim in a civil suit seeking damages and penalties.
Placing “profits over people,” Wellls Fargo failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance under the Director Endorsement Lender program, officials allege.
The nation’s top mortgage lender, San Francisco-based Wells Fargo also failed to notify the U.S. housing officials that run the program despite knowing about the problem loans, the suit alleges.
The U.S. Attorney’s Office in Manhattan, which filed the suit, said it will seek “hundreds of millions of dollars in damages.”
“Wells Fargo has been a valued participant in the FHA-mortgage lending program,” said Helen Kanovsky, general counsel to the Department of Housing and Urban Development (HUD), which administers the FHA program. “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.”
Wells Fargo denied the allegations in the lawsuit. The lender said it complied with federal regulations.
“Many of the issues in the lawsuit had been previously addressed with HUD,” Wells Fargo said in an emailed 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 FHA provides mortgage insurance on loans made by FHA-approved lenders throughout the United States. It also helps make homeownership affordable to first-time homebuyers and lower-income families.
The FHA’s insurance fund has been vastly depleted since the housing market collapse, raising concerns that the agency would require its own bailout by taxpayers.
Lenders under the Direct Endorsement Lender program are required to follow program rules to ensure proper  underwriting and certifying of mortgages for FHA insurance, a
The quality controls required include conducting a full review of all loans that go into default within the first six payments (“early payment defaults”); taking prompt and adequate corrective action upon discovery of fraud or serious underwriting problems; and disclosing to HUD, within 60 days of initial discovery, all loans containing evidence of fraud or other serious underwriting problems.
The suit claims Wells Fargo failed to comply with all three of these basic requirements.

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