On behalf of taxpayers, Manhattan U.S. Attorney Preet Bharara has brought a civil action against Wells Fargo, accusing the lending giant of lying and concealing the poor quality of loans it certified for backing by the FHA. FHA loans that fail (foreclose) are the responsibility of the U.S. Department of Housing and Urban Development to reimburse the bank. In other words, there is no downside to writing a bad loan, which in this lawsuits, Bharara assets involved 6,320 mortgages.
According to the complaint that was filed in Manhattan federal district court, from January 2002 through December 2010, Wells Fargo deliberately concealed the findings of its own risk department that the FHA loans were “seriously deficient.” One of Wells’ own employee determined there was a “a dirty underbelly of bad loan officers.” The lawsuit further alleges that the bonus “incentive” plan that Wells Fargo had set up, was a prescription for disaster because it rewarded employees based on the volume of loans they produced without regard for the quality.
The purpose of FHA government-backed loans is to make home loans available to moderate and lower-income borrowers who would be able to qualify without the programs.
Citigroup, Flagstar Bank, Bank of America, Deutsche Bank and FBC have already reimbursed the FHA $1 billion after their own similar legal settlements.
Read the original article in the Huffington Post.