Federal prosecutors have increased efforts to go after Federal Housing Administration lenders for poor and allegedly fraudulent underwriting, but some worry that such lawsuits could freeze an already frigid lending environment, National Mortgage News reported Oct. 16.
The most recent suit, filed Oct. 9 against Wells Fargo by U.S. Attorney Preet Bharara, accused the bank of “reckless” mortgage fraud in its approval of more than 100,000 loans for Federal Housing Administration insurance. Bharara is seeking treble damages under the False Claims Act, which could cost Wells Fargo $750 million.
Brian Chappelle, mortgage consultant and co-founder of Potomac Partners in Washington, told National Mortgage News that the lawsuit was a “killer” in terms of getting FHA lenders to expand credit. “This suit does not have a chilling effect — it has a freezing effect.”
Helen Kanovsky, general counsel for the U.S. Department of Housing and Urban Development, told National Mortgage News that the suit against Wells Fargo and other FHA lenders is “necessary not only to deter future improper acts but to recover damages on behalf of the FHA mortgage fund and taxpayers.” Kanovsky noted that Wells Fargo still is a “valued participant” in the FHA program.
Wells Fargo has denied all allegations.
U.S. attorneys already have reached underwriting abuse settlements with CitiMortgage for $158 million, Flagstar Bank for $133 million and Deutsche Bank for $202 million. And sources say the federal government is investigating other FHA lenders as well.