“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Acting U.S. Attorney for the Northern District of California Alex G. Tse, in a press release. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.”
The United States alleged that, in 2005, Wells Fargo began an initiative to double its production of subprime and Alt-A loans. As a result, the firm loosened its requirements for originating stated income loans, which is when a borrower states their income without providing any supporting documentation.
Despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information. In addition, the lender screened out many of these loans from its own loan portfolio and limited its liability to third parties for the accuracy of its stated income loans.
Wells Fargo went on to sell at least 73,539 stated income loans between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors.
“This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis,” said Acting Associate Attorney General Jesse Panuccio. “It sends a strong message that the Department is committed to protecting the nation’s economy and financial markets against fraud.”
According to Reuters, Wells Fargo said the settlement amount was fully accrued as of June 30.
“We are pleased to put behind us these legacy issues, regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago,” said Wells Fargo CEO Tim Sloan.