The U.S. Justice Department said Wednesday it is fining Wells Fargo more than $2 billion for mortgages it made and sold to investors in the run-up to the financial crisis, the latest blow to the San Francisco-based bank.
Wells agreed to pay the $2.09 billion penalty to settle allegations it knowingly misrepresented the quality of the residential loans, which cost investors billions of dollars when they soured, the Justice Department said.
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” Alex Tse, acting U.S. Attorney for the Northern District of California, said in a statement. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted.”
In a statement, Wells Fargo CEO Tim Sloan said the alleged activities occurred more than a decade ago and the bank is glad to put the matter behind it. In reaching the settlement, the bank did not admit to the claims.
“Wells Fargo remains focused on our important role as one of the nation’s leading providers of mortgage financing and on our commitment to expanding sustainable home ownership opportunities for our customers,” Sloan said.
Wells Fargo, which has a large presence in Charlotte, becomes the latest bank to settle allegations of mortgage abuses that contributed to the financial crisis. Charlotte-based Bank of America is among firms that have already paid fines over such claims.
Wednesday’s settlement follows disclosures Wells previously made to investors that the Justice Department was investigating it over the issue.
The settlement also comes as Wells continues to grapple with fallout over a massive scandal involving fake customer accounts that erupted in 2016, as well as from more recent fines and revelations about its business practices.
According to Wednesday’s allegations, in 2005, Wells Fargo began an initiative, dubbed “Courageous Underwriting,” to double its production of sub-prime and Alt-A loans, a type of mortgage with a quality between prime and sub-prime.
As part of the initiative, Wells loosened its requirements for originating stated-income loans — those in which a borrower states their income without providing supporting documentation, according to the allegations.
Wells conducted internal testing of the loans and found a substantial portion of them contained misstated incomes for borrowers, authorities said Wednesday. Wells failed to disclose that information to investors and instead reported to them false debt-to-income ratios in connection with the loans, according to allegations.
Meanwhile, Wells Fargo took steps to insulate itself from the risks of the loans, including by screening out many of them from the bank’s own loan portfolio, authorities said.
Wells sold at least 73,539 stated-income loans that were included in mortgage-backed securities between 2005 to 2007, nearly half of which have defaulted, according to allegations.
Wednesday’s fine comes after the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency in April fined Wells $1 billion over claims of improper mortgage and auto-lending practices that harmed consumers.
©2018 The Charlotte Observer (Charlotte, N.C.)
Visit The Charlotte Observer (Charlotte, N.C.) at www.charlotteobserver.com
Distributed by Tribune Content Agency, LLC.
Copyright 2018 Tribune Content Agency.