Business

Feds allege mortgage loan fraud at Wells Fargo

Not even Warren Buffett’s bank darling can avoid the long arm of the law.

Wells Fargo, the nation’s biggest bank and its largest mortgage lender, was charged by federal prosecutors yesterday with running a decade-long mortgage fraud involving recklessly underwritten US-insured home loans to fatten its bottom line.

The San Francisco bank then compounded matters, it is charged, by covering up the toxic mortgages.

“[Wells Fargo] has engaged in a long-standing and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” Manhattan US Attorney, Preet Bharara, who filed the charges, said in a statement.

Wells Fargo, owned in part by investing guru Buffett, proved costly to taxpayers, who wound up footing the bill for millions of dicey home loans originated from 2001 to 2010, the complaint alleges.

The scheme alleges that Uncle Sam is owed “hundreds of millions of dollars” based on Wells falsely certifying tens of thousands of bad loans during 2003 to 2005, which ultimately were backed by the Federal Housing Administration and paid out by the US Department of Housing and Urban Development.

The suit also charges that Wells knowingly hid 6,000 dicey loans from 2002 to as recently as 2010, which resulted in the government mortgage insurer shelling out hundreds of millions in claims.

In a dash for cash, Wells hired temps to “churn out and approve an ever-increasing” pile of mortgages and incentivized staff with fat year-end bonuses linked to how much mortgage sludge they could originate, it is charged.

“As also alleged, Wells Fargo’s bonus incentive plan — rewarding employees based on the sheer number of loans approved — was an accelerant to a fire already burning, as quality repeatedly took a back seat to quantity,” Bharara said.

Up to now, Wells Fargo had sidestepped reputation-sullying charges hurled by regulators and prosecutors concerning toxic mortgages. That, perhaps, has prompted Buffett to continue to add to his investment in Wells, which dates back to 1989.

A spokeswoman for the bank denied the allegations.

“[Wells Fargo] will present facts to vigorously defend itself against this action,” she wrote in an e-mailed response.

The suit helped send shares of Wells Fargo down 2 percent to close at $35.10. The shares are up 28 percent this year.

Earlier this year, Bank of America agreed to pay $1 billion to settle fraud claims related to FHA-backed mortgages.

BofA did not admit any guilt.

More suits against banks are expected with similar claims.