A tentative settlement reached for more than $1 billion between Wells Fargo & Co. and the government resolves claims of reckless underwriting and fraudulent loan certifications on government-insured loans.
The San Francisco-based financial services firm was originally sued in 2012 by
the Department of Justice in a Manhattan, New York, federal court based on alleged violations of the False Claims Act.
In its lawsuit, the government alleges that Wells Fargo certified 100,000 Federal Housing Administration-insured mortgages from May 2001 until October 2005 even though many shouldn’t have been certified.
The loans at issue were originated through the lender’s retail channel.
Not long after the complaint was filed, Wells Fargo asked the U.S. District Court for the District of Columbia to require the government to drop its lawsuit.
The bank claimed that the February 2012 national servicer settlement, which was approved by the federal court in the District of Columbia, released it from further liability to the United States.
But the motion was denied.
Wells Fargo disclosed in 2014 that it was working on settling the case — though those talks apparently broke down.
But in a filing with the Securities and Exchange Commission, Wells Fargo said it reached an agreement in principle on Feb. 1 to settle the litigation.
The settlement
will cost the company $1.2 billion.
“In connection with the resolution of these matters, the company, subsequent to the announcement of its 2015 financial results on Jan. 15, 2016, has provided for an additional legal accrual which increased operating losses within non-interest expense by $200 million,” the SEC filing stated. “As a result, the company reduced its net income for the year ended Dec. 31, 2015, by $134 million.”
However, Wells Fargo warned in the filing that there is no assurance that it and the government will agree on the final documentation of the settlement.
