The federal government is going after banking giant Wells Fargo in a civil lawsuit that alleges the company exploited taxpayers by lying about the quality of loans they were selling.
Los Angeles Foreclosure Defense Attorney Vincent Howard of HOWARD LAW understands that even if the government wins its case, it may not have much impact on those currently facing a possible foreclosure. Still, the case could set a precedent first open the doors for additional litigation and secondly establish tighter standards for mortgage lenders in the future.
At issue is Wells Fargo's actions with regard to loans backed by insurance from the Federal Housing Administration. The government has alleged that for almost a decade, the company deceitfully hid problems with more than 6,300 home loans that the bank knew should have been classified as "seriously deficient."
What this means is that homeowners were tricked into believing that they could afford loans that were over-inflated and far above any amount they could have been reasonably expected to repay. But what's more, the government was insuring these loans. These insurance policies have a standard by which loan risks have to be measured in order to qualify for coverage. These loans should not have qualified for the insurance, but the bank, according to the government, concealed facts that would have prevented the government from providing this coverage. And when the bottom fell out of the housing market, millions of homeowners defaulted and the government was stuck with a large chunk of the bill.
According to federal prosecutors, Wells Fargo systematized this fraud, hiring hoards of temporary employees to churn out these loans, providing improper incentives to these workers for gaining FHA approval and using shady underwriting tactics.
Wells Fargo is the country's biggest provider of home loan mortgages, but it isn't the only one to have allegedly engaged in such tactics. There are actually hundreds. However, other large banks chose to settle with the federal government over similar claims, rather than fight them, as Wells Fargo is choosing to do.
The government is seeking $190 million in damages, and has promised similar cases may be brought in the near future as well. Specifically, prosecutors are employing a seldom-used law called the Financial Institutions Reform, Recover and Enforcement Act. This was a measure that was born out of the 1980s savings-and-loan scandals, and it allows the government to sue banks for huge sums for violations against federal insurers. One encouraging aspect of the case is that the government doesn't have to meet the same standard of proof as it would in a criminal fraud case filed against a business.
Despite bringing this action, the Department of Justice has been widely criticized for not pressing charges against the executives who orchestrated these vast and fraudulent schemes. Prosecutors have countered that such actions are difficult to prove, and a conviction would mean a requirement to meet the regular standard of criminal proof, which is guilt beyond a reasonable doubt.
Wells Fargo denies any wrongdoing, and has promised to vigorously combat the allegations in court.
Los Angeles Foreclosure Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.
Wells Fargo Lawsuit: U.S. Sues Bank Alleging Civil Mortgage Fraud, Oct. 9, 2012, By Ben Hallman, Huffington Post
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