The bank admitted it certified that thousands of faulty home
mortgage loans were eligible for Federal Housing Administration
insurance.
When the market crashed in 2008, American taxpayers ended up on
the hook for the bad loans.
"Wells Fargo enjoyed huge profits from its FHA loan business,
the government was left holding the bag when the bad loans went
bust," Manhattan U.S. Attorney Preet Bharara said in a
statement. "Today, Wells Fargo, one of the biggest mortgage
lenders in the world, has been held responsible for years of
reckless underwriting."
Many of these loans were made to families who didn't really
qualify for them and later lost their homes.
A federal judge approved the settlement Friday, and the Department
of Justice claimed a major victory.
In a statement, Wells Fargo (WFC) said the settlement resolves
"potential claims going back as far as 15 years" and
lets the bank "put the legal process behind us."
This case was one of many investigations that the federal
government launched against big banks after the subprime mortgage
crisis.
Financial giants have settled the cases one by one. In January,
Goldman Sachs agreed to pay $5.1 billion for shady deals that
fueled the crisis. Last year, Morgan Stanley settled for $2.6
billion. In 2013, JPMorgan Chase settled for $13 billion.
As in other bank settlements, no criminal charges have been
brought against any bankers themselves.
Wells Fargo executive Kurt Lofrano admitted to hiding bad loans,
but he's not personally liable for any damages -- and faces no
criminal charges.
To keep participating in the FHA loan program, Wells Fargo had to
tell the federal government that its loans were reliable enough to
qualify for FHA insurance. As vice president of credit risk and
quality assurance at Wells Fargo, it was Lofrano's job to notify
the government.
But he hid the truth, according to court papers.
As part of this settlement, Lofrano admitted that he oversaw the
team of bankers who spotted bad loans -- but didn't report most of
them.
Wells Fargo acknowledged that between 2005 and 2010, it only
reported 300 problematic loans to the Department of Housing and
Urban Development. Meanwhile, internally it had spotted 2,900
loans with problems.
When those loans defaulted, the federal government paid the
insurance claims -- not Wells Fargo.
Calls to Lofrano's home in Minnesota were not answered.
According to HUD Secretary Julián Castro, this $1.2 billion
settlement is the most money ever recovered by taxpayers for shady
loan violations in the history of FHA program.
"Yet, this monetary figure can never truly make up for the
countless families that lost homes as a result of poor lending
practices," Castro said in a statement.