Wells Fargo (WFC) Stock Lower After Lawsuit News

Shares of Wells Fargo & Company (WFC: Charts, News) closed down -0.70 or -1.96 percent to $35.10 per share on Tuesday, after news that the company was being sued by the U.S. government for "reckless" lending practices over the past ten years.

The lawsuit accuses the bank of defrauding the Federal Housing Administration, which paid out hundreds of millions of dollars in claims on thousands of defaulted mortgages. Claims on the defaulted mortgages were made due to Wells Fargo's participation in the FHA's Direct Endorsement Lender Program where the bank is alleged to have made false certifications for hundreds of millions in loans. Daily Chart
San Francisco, California based Wells Fargo & Company is the fourth largest U.S. bank by assets and the largest by market capitalization. The lawsuit - seeking "hundreds of millions of dollars" - brought by the U.S. Attorney in Manhattan is for civil fraud against the bank's subsidiary Wells Fargo Bank, NA using the Federal False Claims Act. Under the act, companies accused of defrauding government agencies have damages trebled. In February, Bank of America (BAC: Charts, News) agreed to pay a $1 billion settlement without admitting wrongdoing to settle a federal lawsuit for False Claims Act fraud also involving FHA backed loans. In all, five lawsuits have been filed by the government for mortgage fraud against large banks using the Federal False Claims Act. According to the complaint, Wells Fargo's misconduct dates back to May of 2001 and that the company has been regularly engaged in "reckless origination and underwriting" of government backed loans. The complaint alleges that out of 100,000 FHA loans that were improperly underwritten, more than half did not meet federal guidelines. The mortgage fraud lawsuit against Wells Fargo is the fifth for U.S. Attorney Preet Bharara, who stated that the bank's incentive program that rewarded its employees on the amount of loans approved was "accelerant to a fire already started." Bharara's office also stated that "The extremely poor quality of Wells Fargo's loans was a function of management's nearly singular focus on increasing the volume of FHA originations - and the bank's profits - rather than on the quality of the loans being originated." In all, the suit is seeking triple damages of around $190 million in insurance claims on 6,320 defaulted mortgages paid by the FHA, with additional penalties that could bring the total to as much as $800 million according to some analysts. Wells Fargo has denied the allegations, promising to vigorously defend its actions, saying that it made the loans in good faith and "as a prudent and responsible lender" in compliance with federal rules. The current suit is the third mortgage related lawsuit for Wells Fargo this year. Despite the lawsuits, Wells Fargo & Company stock recently approached its yearly high, trading up to $36.30 per share. How the company's stock weathers the current setback remains to be seen. Other News About WFC Wells Fargo Independent Channel Grows With Wirehouse Recruits Article on Wells Fargo's independent retail brokerage arm. Wells Fargo Reports 803,456 Active Trial and Completed Modification Article on mortgage modifications made by Wells Fargo through August. Other Stocks in the News Walmart Targets Unhappy Bank Customers With New Prepaid Card Walmart wants to be your new banker. MetLife to Launch Asset-Management Business Insurer to enter the asset management business. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Oct 10, 2012
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

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