Wells Fargo agrees to $1.2 billion settlement in FHA loan lawsuit

A Wells Fargo Bank sign is seen through a motorized cable car in San Francisco California

Thomson ReutersA Wells Fargo Bank sign is seen through a motorized cable car in San Francisco

Wells Fargo & Co. has agreed to a $1.2 billion settlement that resolves federal charges of "reckless origination and underwriting" of government-backed mortgages. The US Justice Department sued the bank in 2012, after paying out insurance when the loans went bust.

Wells Fargo said in a filing with the Securities and Exchange Commission that it reached an agreement in principle with the Department of Justice, the U.S. Attorney's Office for the Southern District of New York, the U.S. Attorney's Office for the Northern District of California and the U.S. Department of Housing and Urban Development. The price tag grew as the investigation broadened to include more regulators and a 10-year time frame through 2010, these people said. Back in March 2015, Wells Fargo said it would lay off 1,000 workers across the nation.

The banker made the decision because of "improvements in delinquency and foreclosure rates and only modest improvements in the demand for mortgage financing", said Wells Fargo spokeswoman Lara Underhill in an email.

The settlement will increase the bank's expenses for past year by $200 million, forcing it to restate 2015 net income by $134 million (3 cents per share), to $22.9 billion. Several lenders including Bank of America, Citigroup and Deutsche Bank have resolved similar lawsuits over FHA-insured loans, paying hundreds of millions of dollars to settle their cases.

Between 2001 and 2005, prosecutors said, the bank issued thousands of loans that did not meet FHA requirements.


The bank, which has a large presence in Charlotte, initially reported profit of $23.03 billion, or $4.15 a share, last month.

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