Wells Fargo To Pay $2 Billion Penalty For Alleged Mortgage Abuses Leading Up To Financial Crisis
Wells Fargo has agreed to pay a penalty of more than $2 billion for allegedly selling low-quality loans the company knew contained fraudulent information in the years leading up to the financial crisis, according to a statement released by the U.S. Attorney's Office in the Northern District of California Wednesday.
The DOJ said many investors, including financial institutions insured by the federal government, lost billions of dollars after investing in residential mortgage-backed securities containing Wells Fargo loans.
The government said internal testing of stated income loans sold by the company from 2005 to 2007 showed a majority of those loans had fraudulent income information and were not up to par with the quality Wells Fargo boasts of.
The DOJ further alleges that Wells Fargo didn’t disclose the results of the testing, and continued to “herald its fraud controls” even after the tests identified numerous discrepancies.
Alex G. Tse, the U.S. Attorney, said it was “abuses in the mortgage-backed securities industry” that led to the 2008 financial crisis.
“Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted,” Tse added. “Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”
Wells Fargo CEO Tim Sloan addressed the settlement in a press release Wednesday.
“We are pleased to put behind us these legacy issues regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago,” Sloan said. “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 homeownership opportunities for our customers.”
Wells Fargo settled in the case and has not admitted liability in the government’s allegations.
The settlement follows another $1 billion fine by federal regulators in April for other allegations of abuses in auto and mortgage lending.