Final Civil Action: Wells Fargo Bank, N.A., Settled Allegations of Failing To Comply With HUD's FHA Underwriting Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                       U.S. DEPARTMENT OF
                                      HOUSING AND URBAN DEVELOPMENT
                                                OFFICE OF INSPECTOR GENERAL

                                                             September 28, 2016
                                                                                            MEMORANDUM NO:

TO:           Dane M. Narode
              Associate General Counsel, Office of Program Enforcement, CACC

FROM:        Ronald J. Hosking
             Regional Inspector General for Audit, Denver Region, 7AGA

SUBJECT:      Final Civil Action: Wells Fargo Bank, N.A., Settled Allegations of Failing To
              Comply With HUD’s FHA Underwriting Requirements

Our office assisted the U.S. Department of Justice (DOJ), U.S. Attorney’s Office, Southern
District of New York and Northern District of California, in conducting an investigation of Wells
Fargo’s origination of mortgage loans insured by the Federal Housing Administration (FHA).


Wells Fargo Bank, N.A., headquartered in San Francisco, CA, is a mortgage lender that
participates in the U.S. Department of Housing and Urban Development’s (HUD) direct
endorsement program. Lenders approved for the program must follow FHA requirements and
provide annual and per loan certifications that the lender complied with these requirements when
underwriting and approving loans for FHA insurance.   Subject to the requirements of the
program, Wells Fargo is authorized to originate, underwrite and close mortgage loans that are
insured by FHA, an agency within HUD.

In exchange for having the authority to originate and underwrite FHA-insured loans, Wells Fargo
was obligated to determine whether prospective borrowers met certain requirements established
by HUD to qualify for insurance. It also had to certify to HUD that its borrowers met those
requirements. Additionally, it had to provide annual certifications that it complied with HUD
requirements when underwriting and approving loans for FHA insurance. Wells Fargo has been
a direct endorsement lender since 2001.
                                               Office of Audit Region 7
                                 400 State Avenue, Suite 501, Kansas City, KS 66101
                                     Phone (913) 551-5870, Fax (913) 551-5877
                          Visit the Office of Inspector General Website at www.hudoig.gov


                                                     RESULTS OF REVIEW

Based in part on our review, the United States alleged that for certain loans, Wells Fargo failed
to comply with HUD rules and regulations in originating the loans for FHA insurance.
Specifically, during January 1, 2002 through December 31, 2010, Wells Fargo allegedly failed to
self-report to HUD certain FHA loans that Wells Fargo’s quality assurance personnel had
determined contained a material finding. Secondly, during May 1, 2001 through October 31,
2005 and subsequent to this date, Wells Fargo allegedly submitted loans for FHA mortgage
insurance that did not meet the underwriting requirements contained in HUD’s handbooks and
mortgagee letters, and therefore were not eligible for FHA insurance under the Direct
Endorsement Lender Program.

On March 8, 2016, Wells Fargo entered in to a settlement agreement with the United States.
Wells Fargo admitted, acknowledged and accepted responsibility for, among other things,
submitting to HUD certifications stating that certain loans were eligible for FHA mortgage
insurance when in fact they were not, and not reporting to HUD the majority of the FHA loans
that its internal quality assurance reviews had identified as having material findings. Wells
Fargo agreed to pay to the government $1.2 billion, of which FHA’s capital reserve account was
to receive $642 million and other Federal entities were to receive the remaining $558 million.

We recommend that HUD’s Office of General Counsel, Office of Program Enforcement:

              1A. Acknowledge that the agreement for $642,000,000 represents an amount due HUD.

As of the date of this memorandum the settlement amount due HUD was paid in full. Therefore,
no further action is required by the Office of General Counsel. At issuance of this memorandum
HUD OIG will enter a management decision into HUD’s Audit Resolution and Corrective
Action Tracking System, along with the supporting payment information to demonstrate final
action was completed.