Wells Fargo is set to pay $1.2 billion to settle the case claiming reckless lending practices during a program by the Federal Housing Administration. The agreement was made in February 1 and covers all claims against the bank.
A lawsuit filed in 2012 accusing Wells Fargo of reckless mortgage originations and underwriting practices in 2001 to 2005. According to Reuters, the lawsuit was filed by Manhattan U.S. Attorney Preet Bharara.
The lawsuit claimed that Wells Fargo approved more than 6,000 loans within the span of 2002 to 2010 that were underqualified for federal insurance. The bank also allegedly failed to inform the government of the underqualitifed loans. It also mentioned Wells Fargo vice president Kurt Lofrano as one of the key players in the undisclosed loans.
It was not specified whether the settlement covers the claims against Lofrano, although, it was mentioned that the settlement resolves all claims in the case. As reported by US News, the agreement was made with U.S. Department of Justice, two attorneys general and the Department of Housing and Urban Development.
Wells Fargo is not the only bank to have been linked to such claims as Citigroup, Bank of America and JPMorgan Chase were also linked to the similar issue. All cases ended with settlements. According to New York Times, the legal expense in the case will cause Wells Fargo a $134 million reduction in their 2015 profit.
The settlement will also cause the bank an increase in their 2015 expenses by $200 million which will force them to restate their income. Moreover, although the settlement has been made, "there can be no assurance that the company and the federal government will agree on the final documentation of the settlement.", according to the bank.
The Wells Fargo and the federal government will reportedly submit a status report to the court in February 17. The final document of the settlement is being drafted and will be forwarded to the Justice Department officials for approval.
