In terms of market value, Wells Fargo is currently the largest financial institution in the world. In light of its size and the great number of people it serves, it becomes especially alarming when allegations of wrongdoing arise. U.S. District Judge Jesse Furman of Manhattan issued an order allowing the U.S. to pursue a case against Wells Fargo involving financial maneuvers contributing to the U.S. housing crisis.
Details of the Case Against Wells Fargo Reveal Submission of Fraudulent Documents to the Department of Housing and Urban Development
When homebuyers decide to enter into a mortgage agreement for the purchase of a house, there are a number of documents and forms that are signed at the settlement table. This is particularly true in the context of a loan insured by the Federal Housing Authority – also known as an FHA loan. FHA works with HUD to help buyers achieve home ownership who may not otherwise be eligible (e.g., buyers with little or no cash to put towards a down payment). One component and benefit of an FHA loan is that HUD will issue mortgage insurance to protect lenders from the risk of buyers’ default. In order for an FHA loan to qualify for insurance, it must meet certain criteria.
In its allegations, the DOJ believes Wells Fargo engaged in a systematic and intentional scheme to obtain government-backed mortgage insurance for loans that did not qualify, thereby costing the government millions of dollars when thousands of families entered into default during the recent housing crisis. The allegations are derived both from the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which allows for penalties against any entity engaging in financial fraud against the government. Wells Fargo asserted that any claim under FIERREA should be dismissed because the only institution harmed by its conduct was itself. The Court disagreed, holding “The question considered by the courts in these cases was whether a financial institution, through its own misconduct, can affect itself within the meaning of FIRREA….Courts have repeatedly held that it can. There is no reason to deviate from that interpretation here.”
Wells Fargo Falls in Line as Banks are Forced to Answer for Their Misconduct
Wells Fargo is not the only U.S. banking institution facing allegations of fraud and deceit. Trial began this week of banking behemoth Bank of America to determine its role in the 2008 financial meltdown, particularly whether it sold risky loans to Fannie Mae and Freddie Mac. The government also pursued other claims against Bank of America in 2012, resulting a settlement of $1 billion. Furthermore, the government received $202.3 million in a settlement with Deutsche Bank AG, $158.3 million from Citigroup Inc, and $132.8 million from Flagstar Bancorp Inc.
Whistleblowers Be Alert: Banking or Mortgage Fraud Lurks on Wall Street and Main Street
If you believe your bank or lender may be engaging in shoddy lending practices or have knowledge of other financial fraud, you may be able to take part in a whistleblower cause of action against on behalf of the U.S. government. As the Assistant U.S. Attorney General stated in reference to the case against Wells Fargo, its history of “longstanding and reckless…. deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance” had to cease.