The US government today launched legal action against Wells Fargo over claims the bank made "reckless" mortgage loans that defaulted and cost a federal insurance program hundreds of millions of dollars.
The complaint filed by US Attorney Preet Bharara in New York Federal Court is seeking unspecified damages and civil penalties from Wells Fargo for more than 10 years of alleged misconduct, Reuters reported.
Bharara claims the San Francisco banking giant “falsely certified loans insured by the government’s Federal Housing Administration (FHA),” the Los Angeles Times reported.
The false certifications cost the FHA "millions of dollars” in insurance claims on defaulted mortgages, CNN Money reported.
Wells Fargo “engaged in a regular practice of reckless origination and underwriting of its retail FHA loans… knowing that it would not be responsible when the materially deficient loans went into default,” according to the complaint, Bloomberg reported.
In a statement, Bharara said Wells Fargo was an example of another US bank that had allegedly "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.”
The complaint said the "extremely poor quality of Wells Fargo's loans was a function of management's nearly singular focus on increasing the volume of FHA originations – and the bank's profits – rather than on the quality of the loans," CNN reported.
Wells Fargo has denied the allegations.
The case is the fifth mortgage-fraud lawsuit brought against a major lender by Bharara’s office in the wake of the housing collapse and ensuing financial crisis.
Most of those cases have been settled.
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