Wells Fargo, the nation’s largest mortgage lender, has agreed to pay $1.2 billion to put to rest claims that it engaged in reckless lending from 2001 through 2010 under a Federal Housing Administration (FHA) program that left a government insurance fund to clean up the mess.

The bank has been in talks with the government since 2012 over accusations that it knowingly and improperly classified some FHA loans as qualifying for federal insurance when they did not, and failed to inform housing regulators about the deficiencies before filing insurance claims. Regulators have contended that the bank should not have received the insurance proceeds after some of the loans soured. Wells Fargo said the agreement also includes other potential civil claims relating to FHA lending for other periods. If this sounds familiar, it should. Several other large banks settled similar claims recently, including Citigroup, Bank of America and JPMorgan Chase.

Wells Fargo said in a recent securities filing that it had reached an agreement in principle with the Department of Justice and the United States attorney’s offices for the Southern District of New York and the Northern District of California, as well as the Department of Housing and Urban Development.

When he filed the lawsuit in 2012, Preet Bharara, the United States Attorney for the Southern District of New York, said that Wells Fargo had engaged in a “reckless trifecta” of “deficient training, deficient underwriting, and deficient disclosure, all while relying on the convenient backstop of government insurance.” It was one of several lawsuits brought after the financial crisis that accused banks of shoddy lending practices. FHA-backed loans are typically made to first-time home buyers and those with lower incomes.

In fact, in 2012, five major banks, including Wells Fargo, agreed to settle with Department of Justice on charges related to misconduct in mortgage lending. The FHA expanded its investigation to include the alleged role of four of the banks in a related housing crisis. This time, Wells Fargo denied the charges and decided to pursue a lawsuit, and settlement talks broke down. In the recent filing, Wells Fargo said that although both sides reached the agreement, “there can be no assurance that the company and the federal government will agree on the final documentation of the settlement.”

Sources: New York Times and www.foxbusiness.com

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