Wells Fargo to pay $1.2bn to US authorities over mortgages

Wells Fargo has agreed to pay $1.2bn to US authorities to settle claims that it engaged in "reckless" practices for about a decade and left the taxpayer to deal with the fallout. The lawsuit accuses the bank of misrepresenting the standard of thousands of loans, mainly to first-time buyers and those on low incomes. Authorities also contended the bank should not have received insurance payouts under the Federal Housing Administration programme when borrowers defaulted. Wells Fargo says it had made a provision to cover expected losses from the episode but added that settlement would cost it an additional $200m, as a result it has had to revise down its net income for 2015 to $134m.

Wells Fargo said in a securities filing on Wednesday 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. The claims were civil and focused on Wells Fargo’s lending under the F.H.A. program from 2001 to 2010.

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 poor training, deficient loan underwriting and poor disclosure in the government-backed loan program.

It was one of several lawsuits brought after the financial crisis that accused banks of shoddy lending practices. F.H.A.-backed loans are typically made to first-time home buyers and those with lower incomes.

Wells Fargo denied the claims at the time, and settlement talks have broken down before. In the filing on Wednesday, 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.”

Regulators have contended that the bank should not have received the insurance proceeds after some of the loans soured. The agreement also includes other potential civil claims relating to F.H.A. lending for other periods, Wells Fargo said.