Wells Fargo: Department of Justice Not Playing Fair

by Bilzin Sumberg Baena Price & Axelrod LLP
Contact

Crying Foul

Wells Fargo has recently cried foul, claiming that the Department of Justice’s latest lawsuit against it in the Southern District of New York violates the terms of a settlement agreement Wells had previously reached with the federal government. And not just any settlement; Wells Fargo is referring to the infamous “Robo-signing” “deal” among the US government, state attorneys general, and several of the notable “too big to fail” big banks, including Wells Fargo.

Wells Fargo claims it had previously agreed to pay $5 billion to settle its alleged fraud and other wrongdoing in the mortgage loan markets, but in reality there is wide spread criticism to this day over what many believe to have been a sweetheart deal for the big banks. In no small part that is because the big banks are not paying out anything close to the aggregate $25 billion payout amount that has been widely reported.

In this new suit, filed October 9th, the government seeks hundreds of millions of dollars in damages for alleged mortgage fraud violations under the False Claims Act. Preet Bharara, U.S. Attorney for the Southern District of New York said that Well Fargo, “engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting, and deficient disclosure, all while relying on the convenient backstop of government insurance.”

The lawsuit encapsulates more than a decade’s worth of alleged misconduct by Wells Fargo’s as a participant in the Federal Housing Administration direct loan program. The DOJ has alleged that the FHA paid hundreds of millions of dollars in insurance claims on thousands of these mortgages that ultimately defaulted.

The Complaint

As alleged in the Complaint, from May 2001 through October 2005, Wells Fargo regularly and recklessly originated and underwrote retail FHA loans under the FHA’s Direct Endorsement Program, thinking it would not be responsible when the loans went into default, because under this program HUD insured the loans that Wells Fargo was originating.

During this period, Wells Fargo certified to HUD that over 100,000 retail FHA loans met HUD’s requirements for proper originating and underwriting, when in fact the complaint alleges that Wells Fargo knew that a very substantial percentage of these loans (as many as nearly half the loans in certain months) had not been properly underwritten, contained unacceptable risk, and were ineligible for FHA insurance.

The Complaint further alleges that the poor quality of these loans was a function of Wells Fargo’s managements’ nearly singular focus on increasing the volume of FHA originations as the expense of underwriting quality, and thereby increasing the bank’s profits. Further, the Complaint alleges that from January 2002 through December 2010, Wells Fargo purposefully violated HUD reporting requirements to avoid disclosing the materially deficient loans it had underwritten.

On November 1st, Wells Fargo denied liability and said it should not have to answer the Complaint because it had previously resolved all such claims with the government. Obviously, by commencing this new action against Wells Fargo, the government disagrees.

We are rooting for the government here, simply because we would like to see Wells Fargo defend itself in this case. We also think that Mortgage loan originators all over the country would be happy to offer suggestions to Wells Fargo as to available defenses.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bilzin Sumberg Baena Price & Axelrod LLP | Attorney Advertising

Written by:

Bilzin Sumberg Baena Price & Axelrod LLP
Contact
more
less

Bilzin Sumberg Baena Price & Axelrod LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!