Can Wells Fargo be sued again after the mortgage settlement?
A new federal lawsuit filed by the Manhattan U.S. Attorney’s office accuses Wells Fargo of a decade of illegal behavior in connection with mortgages insured by the Federal Housing Administration (FHA), which the bank asserts contravenes the terms of the historic $25 billion mortgage settlement between the nation’s largest banks, 49 states, and the federal government for illegal foreclosure practices.
In a letter to U.S. District Judge Rosemary Collyer, who approved the settlement, Wells Farogs’ lawyers plead that the settlement “”wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its Federal Housing Administration mortgage loan portfolio, among other areas.”
The letter continued, “Wells Fargo committed billions to the United States in [the $25 billion mortgage settlement] and should be able to rely on the United States to observe and abide by its commitments and representations.”
The bank argues that the settlement disallows the government from filing additional cases against the banks based on the FHA program, unless it is shown that an individual underwriter at Wells Fargo (or other banks that settled) knowingly certified that an individual loan met FHA eligibility requirements, when it did not.
Government seeking hundreds of millions of dollars
The Manhattan case seeks damages for hundreds of millions of dollars in FHA insurance claims paid by the government for mortgages that they allege Wells Fargo originalted, underwrote, and wrongfully certified, which later went into default, costing the government big bucks.
“First, between May 2001 and October 2005, Wells Fargo engaged in a regular practice of reckless origination and underwriting of its retail FHA loans,” the U.S. Attorney’s office charged. “Nonetheless, Wells Fargo certified that over 100,000 retail FHA loans met HUD’s requirements and therefore were eligible for FHA insurance.”
Additionally, the government alleges that starting in October of 2005, for the next six years, the bank hid thousands of mortgages from HUD that it was legally required to report, even though its own reviews unveiled that the loans never met FHA underwriting standards.
According to court documents the government claims, “As a result of Wells Fargo’s intentional concealment of the 6,320 loans internally identified as containing material violations, Wells Fargo avoided indemnification to HUD on approximately $190 million dollars in FHA benefits paid on claims for defaults on those loans.”
Wells Fargo requested that Judge Collyer block the lawsuit, as they expect the government to oppose the request.