The US government has sued Wells Fargo in a New York court, accusing America's largest mortgage lender of misrepresenting the quality of thousands of loans in order to be eligible for federal loan insurance. The lawsuit, filed today in federal court in Manhattan, seeks to recover "hundreds of millions of dollars" that the Federal Housing Administration paid out after borrowers defaulted on Wells Fargo mortgage loans. The bank denied the charges and promised a vigorous defense.
Wells Fargo had applied for FHA insurance for the loans, meaning that if the loans went bad, the bank could ask the government to pay for costs associated with the defaulted mortgages. The lawsuit charges that Wells Fargo falsely certified that some loans were eligible for government insurance when they actually weren't. Specifically, it alleges that between May 2001 and October 2005, Wells Fargo certified that more than 100,000 mortgage loans were eligible for the insurance. But "a very substantial percentage of those loans," nearly half in some months, were not up to snuff, according to the lawsuit. Last week, the government went after JPMorgan Chase for its practices during the housing boom and bust. (Read more Wells Fargo stories.)