The United States government is suing Wells Fargo & Co. for reckless practices in lending, resulting in the Federal Housing Administration (FHA) picking up the tab.
The case filed against the biggest mortgage lender in the country is the most recent use of the False Claims Act (FCA). Wells Fargo is accused of defrauding the FHA, which has backed mortgage loans to those who have low level of incomes and first-time purchasers. The FCA has been used as a legal tool for the federal government to get treble damages for proven violations. In February, Bank of America Corp. settled allegations of FCA violation by agreeing to pay $1 billion. Also, there were three other major banks involved in the same cases that agreed to pay a total of $490 million.
According to the prosecutors who filed the case against Wells Fargo, they were seeking damages amounting to hundreds of millions of dollars for the FHA.
The company was charged with almost 10 years of wrongdoings starting in May 2001. The suit asserts that Wells Fargo was involved in frequently practicing recklessness in the origination and underwriting of loans backed by the government. Based on the complaint, the company stated that over 100,000 FHA loans satisfied federal rules but more than 50 percent of them did not.
Wells Fargo gave a statement on Tuesday denying the allegations, saying that it acted in good faith and it complied with the guidelines. A number of issues in the suit were earlier resolved with the federal agencies, according to the company.
The lawsuit filed on Tuesday is the third federal case filed against the company this year. The strong performance of Wells Fargo throughout the financial crisis allowed it to acquire Wachovia Corp. and become the biggest mortgage lender in the U.S.
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