New York (AFP) - Wells Fargo will pay $1.2 billion to refund US agencies for wrongly certifying bad loans for federal home insurance ahead of the 2008 housing bust, the Department of Justice announced Friday.
The settlement resolves charges that Wells Fargo, a giant in the US mortgage lending, employed shoddy underwriting practices to drive up loan volume, leaving taxpayers to foot the bill when mortgages failed.
The government faulted Wells Fargo's actions under the federal direct endorsement lender program, which lets mortgage lenders originate, underwrite and certify mortgages for federal loan insurance in return for adequate oversight of the loans.
But Wells Fargo "engaged in a regular practice of reckless origination and underwriting of its FHA retail loans, all the while knowing that it would not be responsible when the defective loans went into default," Justice said.
The bank identified thousands of problematic loans, but failed to report them to the US Department of Housing and Urban Development, said US Attorney Preet Bharara.
"As a result, while Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust," Bharara said.
"With today's settlement, Wells Fargo has finally resolved the years-long litigation, adding to the list of large financial institutions against which this office has successfully pursued civil fraud prosecutions."
Wells Fargo said the agreement "allows us to put the legal process behind us, and to focus our resources and energy on what we do best—serving the needs of the nation’s homeowners."