BIG BANKS, SUB PRIME LOANS, ABUSE OF
HOME OWNERS IN DISTRESS-THE
The U.S. government is going after a further alleged scoundrel from the housing bust. The victim, as in earlier cases, is the Federal Housing Administration (FHA), which paid out millions in claims on loans that never should have been issued. What may surprise people is the alleged villain: Wells Fargo (WFC), the bank that counts Warren Buffet as its largest shareholder.
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The Wells Fargo case is brought under the False Claims Act, which provides penalties for fraud against the government, and under the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA for short, a little-used statute that has grown in popularity in the past year The law requires a lower burden of proof than criminal charges, has a longer statute of limitations than other financial laws and potentially could bring big fines..
“Certainly, there is nothing wrong with every effort being made to clean up the mess left by the banks. But the complaint is reported to make allegations for actions dating back over a decade. If so, then where were the feds over the last 10 years? Shouldn’t the regulators have to answer as to why they did not uncover this alleged wrongdoing sooner? The American people would like answers on that as well.”
Wells Fargo accused in U.S. mortgage fraud lawsuitThe lawsuit alleges Wells Fargo failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance. The action alleges more than 10 years of misconduct.
WASHINGTON — Federal officials unleashed a series of legal assaults on the financial industry, targeting actions they said helped trigger the housing market collapse and then attempted to take advantage of desperate homeowners left in its wake.
BIG BANK DEFRAUDS GOVERNMENT OF HUNDREDS OF MILLIONS OF DOLLARS
The U.S. attorney's office in Manhattan accused Wells Fargo of defrauding a government-backed mortgage insurance program of hundreds of millions of dollars over more than a decade by improperly underwriting more than 100,000 home loans.
The problematic loans were not eligible for the government insurance, according to the lawsuit, and when they soured, the F.H.A. was obligated to cover the losses. The Justice Department is seeking hundreds of millions of dollars in damages.
530 PEOPLE ACCUSED, DROP IN THE BUCKET
At the same time, Atty. Gen. Eric Holder and other officials announced the results of a yearlong effort to attack mortgage assistance scams. The Distressed Homeowner Initiative led to criminal charges against 530 people accused of defrauding about 73,000 underwater homeowners nationwide of an aggregate $1 billion.
PREDATORS OFFERING MORTGAGE ASSISTANCE RIP OFFS
The initiative also led to 110 federal civil cases against more than 150 defendants who allegedly bilked an additional 15,000 victims out of $37 million in financial losses through phony mortgage-assistance schemes.
HISTORIC GOVERNMENT WIDE COMMITMENT TO HOLD THE MORTGAGE FRAUD PREDATORY PRACTICES CRIMINALLY ACCOUNTABLE
"Put simply, these comprehensive efforts represent an historic, government-wide commitment to eradicating mortgage fraud and related offenses around the country," Holder said Tuesday at a news conference.
The action against Wells Fargo came after many civil lawsuits were filed by the government against large banks related to their lending practices. A number of the banks have settled the cases, including Deutsche Bank, which paid more than $200 million to resolve civil fraud charges; Citigroup’s Citimortgage unit, which settled claims for $158 million; and Bank of America, in a settlement connected to its Countrywide Financial business, for $1 billion.
Bank of America (BAC) faced similar issues when it agreed to pay $1 billion in February to settle charges of mortgage fraud in its Countrywide unit. (Earlier this year,Citigroup (C) and Deutsche Bank (DB) paid heavy fines to settle similar fraud charges.)
THANK YOU PRESIDENT OBAMA FOR HOLDING THESE BIG BANKS CRIMINALLY ACCOUNTABLE
In answering a question, Holder said the timing of the announcements wasn't designed to boost President Obama's reelection effort. Obama has said that his administration will hold accountable those who led the nation into the Great Recession and those who took advantage of the victims.
5TH CASE AGAINST LARGE LENDERS
The accusations against Wells Fargo represent the fifth such mortgage fraud case against a major lender launched by U.S. Atty. Preet Bharara. A separate mortgage fraud task force led by the New York attorney general brought an unrelated lawsuit against JPMorgan Chase & Co. last week.
To bring these cases, the government has used an obscure law called the Financial Institutions Reform, Recover, and Enforcement Act. The law, passed after the saving-and-loans scandals in the late 1980s, gives the government broad authority to bring civil claims and seek big financial penalties against federally insured banks. That law also has a lower standard of proof than criminal business fraud statutes.
CASEBOOK EXAMPLE OF WHY NOT TO RUN GOVERNMENT LIKE A BUSINESS
"As the complaint alleges, yet another major bank has engaged in a long-standing and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," Bharara said.
“Management’s actions included hiring temporary staff to churn out and approve an ever-increasing quantity of F.H.A. loans, failing to provide its inexperienced staff with proper training, paying improper bonuses to its underwriters to incentivize them to approve as many F.H.A. loans as possible, and applying pressure on loan officers and underwriters to originate and approve more and more F.H.A. loans as quickly as possible,” the lawsuit said.
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.”
AN EXAMPLE IS NEEDED WELLS FARGO ANY ANY OTHER BANK CHARGED MUST FALL OR REMOVE ITS BOARD AND CEO AND CFO;S
The suit seeks "hundreds of millions of dollars" in damages for claims the Department of Housing and Urban Development has paid to cover defaulted loans "wrongfully certified" by Wells Fargo. The San Francisco banking giant is accused of falsely certifying loans insured by HUD's Federal Housing Administration.
WELL FARGO ENCOURAGED ABUSE
Adding "accelerant to a fire," Bharara said, was a Wells Fargo bonus system that rewarded employees based on the number of loans approved.
BUSINESS CANOT BE SELF REGULATING. WE NEED GOVERNMENT REGULATION TO PROTECT THE PEOPLE FROM BIG BANKS
The lawsuit alleges the bank failed to properly underwrite more than 100,000 loans it certified to be eligible for FHA insurance. When Wells Fargo discovered problems with the loans, it failed to notify HUD, as required, the suit said. The action alleges more than 10 years of misconduct.
PROFITS FOCUS TOUTED BY MANY WITH OUT SOLID PRACTICES AND ACCOUNTABILITY DESTROYED OUR ECONOMY
"The extremely poor quality of Wells Fargo's loans was a function of management's nearly singular focus on increasing the volume of FHA originations — and the bank's profits — rather than on the quality of the loans being originated," Bharara's office said.
YOU HAVE GOT TO BE KIDDING ME
Denying the allegations in the government suit, Wells Fargo said in a statement that it believes it acted "as a prudent and responsible lender" and in compliance with federal rules. It said it would vigorously defend its actions.
"Many of the issues in the lawsuit had been previously addressed with HUD," Wells Fargo said. The bank said its FHA delinquency rates have been as low as half the industry average.
The lawsuit seeks triple damages on about $190 million in insurance claims paid by FHA on 6,320 defaulted mortgages, bringing part of the damages sought to $570 million. Penalties could add as much as $200 million more to the award sought, one analyst estimated.
HIT THEM WHERE IT WILL REALLY HURT
Wells shares lost 70 cents, or 2%, to $35.10 on Tuesday.
Arthur Wilmarth Jr., a law professor at George Washington University who was a consultant to the Financial Crisis Inquiry Commission that investigated the causes of the mortgage meltdown and the economic collapse, praised the U.S. attorney's lawsuit but questioned why the government hasn't gone further with such actions.
SENIOR EXECUTIVES MUST BE PROSECUTED
"This is a positive step," Wilmarth said. "But it still doesn't address the underlying question:
What about the senior executives who caused these institutions to engage in this type of behavior? Are they being held responsible?"
The same question has loomed over mortgage assistance scams. Jon Leibowitz, chairman of theFederal Trade Commission, described the people who operate the scams as "carrion that circle homeowners in financial distress to take the last dollar out of their pockets."
Separately from the Wells suit, federal officials spent the last year pursuing criminal and civil charges against mortgage assistance providers. The largely unheralded operation, which used undercover agents and secret wiretaps, occurred during the federal government's fiscal year, which ended Sept. 30. 
As prosecutors sift through the wreckage of the housing crisis, it’s increasingly clear that no company is beyond reproach.