Updated at 6:45 p.m. ET: The U.S. government has sued Wells Fargo Bank in New York, blaming the nation's largest originator of home mortgages for thousands of loan defaults over the past decade.
A civil fraud suit filed in U.S. District Court in Manhattan Tuesday seeks to recover hundreds of millions of dollars that the Federal Housing Administration, which insured the loans, had to pay out after borrowers defaulted.
The lawsuit charges San Francisco-based Wells Fargo with falsely certifying that its loans met the standards necessary to be eligible for government insurance. U.S. Attorney Preet Bharara says the bank's plan to reward employees for the number of loans they approved "was an accelerant to a fire already burning."
Wells Fargo has denied the allegations and is promising a vigorous defense.
The failures cited by the government to properly review loan documents cover a two-year period from 2003 to 2005. But questions about Wells Fargo's more recent document review practices have persisted.
In March, NBC News reported on a wide range of concerns about the bank’s practices in reviewing foreclosure documents after being contacted by a legal process specialist at the bank’s Charlotte, N.C., mortgage servicing unit. Her account was supported by company documents and by a co-worker in the same office.
In Tuesday’s complaint, the government alleged that from 2003 to 2005 Wells Fargo undertook “a concerted effort to vastly increase its FHA loan volume by hiring temporary staff to underwrite loans, failing to give staff proper training, paying incentive bonuses to underwriters based on the number of loans they processed and pressuring loan officers and underwriters to originate and approve as many FHA loans as quickly as possible.”
The result was a portfolio of mortgages of “extremely poor loan quality.”
The complaint cites internal company reports from February 2003 through October 2005 in which “month after month” Wells Fargo’s quality assurance specialist reported the “extraordinarily and severe and worsening loan quality to the bank’s senior management, yet no effective action was taken."
When the loans defaulted, Wells Fargo submitted insurance claims to the FHA and as a result “the United States has suffered hundreds of millions of dollars in damages” the complaint alleges.
Bharara's office has brought similar cases in the past year, including one against Citigroup's CitiMortgage unit, which settled for $158.3 million in February, and against Deutsche Bank, which paid $202.3 million in May to resolve its case.
The U.S. Attorney's office in Brooklyn brought the biggest such case, against Bank of America Corp's Countrywide unit, which agreed in February to pay $1 billion to resolve the allegations.
Click here to read the full complaint against Wells Fargo.
Reuters, The Associated Press and NBC News' John Schoen contributed to this report.
More money and business news:
