Timothy Sloan CEO of Wells Fargo
Wells Fargo has agreed to pay a $2.09 billion penalty for allegedly misrepresenting the quality of loans used for mortgage-backed securities between 2005 and 2007.
Federal officials allege that the bank loosened borrowers’ income requirements on some of its loans in a move to ramp up its subprime mortgage lending.
As a result, the U.S. Justice Department said investors suffered billions of dollars in losses from investing in residential mortgage-backed securities (RMBS) containing loans originated by Wells Fargo.
Federal officials allege that some of Wells Fargo’s loans had a wide variance between what borrowers stated as their income and their actual income.
Officials further allege that despite knowing that borrowers’ incomes were misrepresented, Wells Fargo failed to disclose this information to investors. Instead it reported false ratios to investors on the loans it sold.
San Francisco-based Wells Fargo did not admit to any wrongdoing as part of the settlement.
“We are pleased to put behind us these legacy issues regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago,” said Wells Fargo CEO Tim Sloan in a statement.
The Justice Department also alleged that Wells Fargo took steps to insulate itself from the risks of these toxic loans by screening out many of these loans from its own loan portfolio.
The penalty is the latest in a series of scandals that have plagued one of the country’s largest banks. Just a few months ago in April, Wells Fargo paid about $1 billion to settle alleged sales abuses of auto and mortgage products.
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