The San Francisco-based lender has been signaling the settlement’s approach. In January, Chief Financial Officer John Shrewsberry told Bloomberg his firm would likely hash out terms this year. While he declined to discuss the potential cost, the firm took a $3.3 billion litigation charge late in 2017, mainly for mortgage-related issues. Bloomberg Intelligence analyst Elliott Stein had estimated the settlement for mortgage-backed securities could cost more than $2 billion.
The government’s complaint relies on the Financial Institutions Reform, Recovery and Enforcement Act -- known as Firrea -- a law that’s allowed authorities to sue banks years later over mortgages that burned federally insured financial institutions.
U.S. investigators cited tests of Wells Fargo mortgages that compared them with borrowers’ tax filings, revealing that more than 70 percent of loans sampled “had an unacceptable discrepancy between stated and actual income,” according to the Justice Department’s statement.
“Despite its knowledge that a substantial portion of its stated income loans contained misstated income, Wells Fargo failed to disclose this information,” the Justice Department said. The bank even took steps to “insulate itself” from the risks posed by such loans, screening many of them out of its own portfolio and limiting its liability to third parties, the government said.
This article was provided by Bloomberg News.