Banking behemoth Wells Fargo agreed Wednesday to pay $2.09 billion in fines for originating subprime mortgages that it knew contained misstated income information in the run-up to the financial crisis.
Investors — including federally insured financial institutions — suffered billions in losses by investing in mortgage-backed securities that contained the Wells Fargo loans, according to the U.S. Attorney for the Northern District of California.
“Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,” said Alex Tse, the acting U.S. attorney for the northern district of California. “Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted.”
Wells Fargo allegedly began an initiative to double its production of subprime and Alt-A loans in 2005, according to the U.S. Attorney’s Office. As part of that initiative, Wells Fargo allegedly loosened its requirements for originating stated income loans, allowing borrowers to simply state his or her income without providing proof, the U.S. Attorney’s Office added.
Wells Fargo sold at least 73,539 stated income loans that were included in mortgage-backed securities between 2005 to 2007, according to the U.S. Attorney’s Office. Nearly half of those loans defaulted.
As part of the settlement, Wells Fargo will not admit liability.
“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. “Wells Fargo remains focused on our important role as one of the nation’s leading providers of mortgage financing and on our commitment to expanding sustainable homeownership opportunities for our customers.”
In April, Wells Fargo was hit with a $1 billion fine after it was revealed the bank had been charging mortgage customers for its own mistakes.
A number of former Wells Fargo employees reported that the bank was charging customers a fee for failing to meet deadlines to lock-in mortgage rates. However, it was the bank that missed the deadline due to a delay in paperwork, a report from ProPublica found last year.