Prior to filing its recent lawsuit against Bank of America, as discussed here, the United States Attorney for the Southern District of New York announced last month it had filed suit against another major U.S. bank for alleged reckless underwriting and false representations made during the sub-prime mortgage crisis—this time, against the largest American home lender, San Francisco-based Wells Fargo, N.A.
Filed in conjunction with the U.S. Department of Housing and Urban Development (“HUD”), the suit seeks treble damages and civil penalties for violations of the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Wells Fargo faces a range of charges including a breach of fiduciary duty, unjust enrichment, and false certifications to HUD, as well as charges under the False Claims Act of knowingly or recklessly making false claims regarding its FHA loans and making false statements in support of those claims.
Wells Fargo insists that the current lawsuit is barred by its five billion dollar settlement over its foreclosure practices in April, arguing that the new claims fall into the categories of claims released per the settlement—servicing, foreclosure, and origination liability claims. The settlement does allow the government and borrowers to preserve claims that include criminal prosecutions, claims relating to securitization of mortgage loans, claims of discrimination in lending practices, and individual or class action claims brought by homeowners and investors.
Most pertinently, the settlement did not preclude the new charges if the prosecution can prove the bank knowingly lied to the FHA about specific loans meeting the program’s eligibility requirements. However, Wells Fargo firmly maintains that the government can only prosecute individual loans under this exception, meaning many of the new charges would nonetheless be prevented.
The defense has submitted a filing to U.S. District Judge Rosemary Collyer, who presided over the settlement, in an effort to block the government from pursuing the new charges. It remains to be seen whether Judge Collyer will take any action to block the new suit.
This lawsuit comes amid several other suits against the nation’s largest lenders, including Bank of America, as the government seeks damages for the banks’ roles in the subprime mortgage crisis.