The Wells Fargo Wagon
"O-ho the Wells Fargo Wagon is a-comin' down the street…"
Let's see what kind of reckless mortgage lending it may have done in your neighborhood.
Palmer Court, Lindstrom, Minn. Can the buyer afford it? Who knows? Wells Fargo Bank did not get copies of the buyer's recent pay stubs.
Martin Luther King Boulevard, Newark. N.J. How's the buyer's credit? Who knows? Wells Fargo did not sufficiently analyze it.
Marsh Salt Court, Springtown, Texas. How much did the buyer put down? Who knows? Wells Fargo did not verify the down payment.
Albert Drive, Old Bridge Township, N.J. What's the ratio of buyer's income to the payment? What? It's 41%? That's enormous. Wells Fargo didn't sufficiently analyze it.
North Main Street, Laketon, Ind. Whoops. Data-entry error. Wells Fargo overstated the buyer's income.
West Summit Avenue, Seymour, Mo. Has the buyer paid the rent or the mortgage on past homes? Heck, Wells Fargo doesn't know.
Why should Wells Fargo know? Wells Fargo wasn't taking the risk. In 1986, the Department of Housing and Urban Development gave Wells Fargo authority to certify loans for Federal Housing Administration insurance. Once these lousy loans were FHA-insured, they were the government's problem.
All of these properties are listed in a lawsuit the government filed against Wells Fargo Bank in U.S. District Court in New York last week.
Manhattan's U.S. Attorney, Preet Bharara, alleges a "long-standing practice of reckless underwriting and fraudulent loan certification for thousands of FHA-insured loans that ultimately defaulted."
Wells Fargo, the nation's largest mortgage lender, denies the allegations, and says it will defend itself vigorously.
Wells Fargo isn't the only big bank accused of such things. This was more or less America's mortgage-making system for years. The damage it did likely brought down your home value, too.
The government alleges Wells Fargo took shortcuts on thousands of mortgages fromMay 2001 through October 2005 and illegally foisted them upon the FHA. It also alleges the bank failed to report more than 6,000 loans that went bad between 2002 and 2010—which may be one reason why it took so long to file this lawsuit.
America's economic decline is largely due to armies of negligent people who were paid commissions to push paper. If you believe what's alleged in countless lawsuits, fraud was commonplace among sellers, buyers, real-estate agents, appraisers, title companies and lenders.
It is a lender's responsibility to properly underwrite a loan to be sure fraud does not occur, let alone run rampant. But when everyone is cheating, and government begs to take the baggage, a lender thinks more about the money than hiring and training bright, honest people to straighten it out.
"Yet another major bank 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," Mr. Bharara said in a news release.
I predict this case will go the way of so many others: Wells Fargo will pay a huge settlement, possibly without any admission of guilt, long before a trial date beeps on any lawyer's smartphone.
Mr. Bharara can sit back and hum the old show tune: "O-ho the Wells Fargo Wagon is a-comin' now; Is it a prepaid surprise or C.O.D.?"
—Al Lewis is a columnist for Dow Jones Newswires in Denver. He blogs at tellittoal.com; his email address is al.lewis@dowjones.com.
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