CALIFORNIA
Wells Fargo Bank and several of its affiliates will pay a civil penalty of $2.09 billion under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, officials announced Wednesday.
The bank knew it had misstated income information and did not meet the quality that Wells Fargo represented.
Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in residential mortgage-backed securities containing loans originated by Wells Fargo.
“This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “It sends a strong message that the Department is committed to protecting the nation’s economy and financial markets against fraud.”
To read the court settlement click here: U.S. Justice Department
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Acting U.S. Attorney for the Northern District of California, Alex G. Tse. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”
Federal law authorizes the federal government to seek civil penalties against financial institutions that violate various predicate criminal offenses, including wire and mail fraud.
The United States alleged that, in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans.
As part of that initiative, Wells Fargo loosened its requirements for originating stated income loans – loans where a borrower states his or her income without providing any supporting income documentation.
The United States alleged that, despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information.
Instead, the bank reported to investors false debt-to-income ratios in connection with the loans it sold. Wells Fargo also allegedly heralded its fraud controls while failing to disclose the income discrepancies its controls had identified.
The United States further alleged that Wells Fargo took steps to insulate itself from the risks of its stated income loans, by screening out many of these loans from its loan portfolio held for investment.
Also by limiting its liability to third parties for the accuracy of its stated income loans, according to officials.
Wells Fargo sold at least 73,539 stated income loans and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.