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Wells Fargo Agrees to Pay a Steep Price for FHA-Insured Defaults

paying-moneyWells Fargo on Wednesday reached a billion-dollar settlement agreement in principle to resolve claims surrounding its Federal Housing Administration (FHA) lending activities.

Since 2012, the lender has been involved with the U.S. government regarding allegations that it was "reckless" in certifying the credit and underwriting quality of FHA loans it originated. The FHA had to pay out insurance claims on FHA-insured mortgages that defaulted.

According to a Securities Exchange Commission (SEC) 8-K filing on Wednesday, Wells Fargo reached an "agreement in principle" with the U.S. Department of Justice, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the Northern District of California, and HUD.

The SEC filing noted that Wells Fargo has agreed to pay $1.2 billion to resolve civil claims that the federal government had pending against the bank concerning its lending program from 2001 to 2010, including other potential civil claims relating to the lender's FHA lending activities for other periods.

"Although the Company and the Federal Government have reached an agreement in principle to resolve these matters, there can be no assurance that the Company and the Federal Government will agree on the final documentation of the settlement," the bank said in the SEC filing.

Catherine B. Pulley, SVP, Consumer Lending Communication at Wells Fargo, told DS News, "Wells Fargo and the United States government have reached an agreement in principle to resolve claims regarding our FHA lending activities, and the company has made an addition to its previously announced reserves to reflect this development. However, we can’t provide any additional details at this time.”

The 8-K filing showed that the settlement will knock $134 million, or $0.03 per share, off the company's 2015 profits, dropping earnings down to $22.9 billion, or $4.12 a share.

The net income numbers for Wells Fargo in Q4 and for the full year of 2015 were little changed year-over-year, according to Wells Fargo’s Q4 2015 earnings statement. Wells Fargo’s Q4 2015 net income of $5.7 billion, price of $1.03 per share, and full year net income of $23 billion were all virtually the same as the year before (the full year net income did slightly decline, from $23.1 billion in 2014 down to $23.0 billion in 2015).

“Full year and fourth quarter 2015 results demonstrated the benefit of our diversified business model as we again generated strong financial results, maintained our risk discipline and continued to invest across the company for future growth,” Wells Fargo Chairman and CEO John Stumpf said. “We remained focused on the building blocks of long-term shareholder value, with continued growth in loans, deposits and capital. For the fifth consecutive year, we returned more capital to shareholders than the prior year. I am proud of the dedication of our team members and their focus on helping our customers succeed financially.”

Click here to view Wells Fargo's SEC 8-K Filing.

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.
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