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Wells Fargo urges judge to reject New York suit over FHA loans

November 01, 2012|By E. Scott Reckard
  • Wells Fargo & Co.'s famous stagecoach. Wells is challenging a lawsuit over its FHA mortgages filed by the U.S. attorney for Manhattan. The bank says a previous legal settlement with state and federal officials covered its liability.
Wells Fargo & Co.'s famous stagecoach. Wells is challenging… (Wells Fargo )

Wells Fargo & Co. challenged a sweeping mortgage-fraud case filed by federal prosecutors in Manhattan, saying any liability was erased in April when it settled a separate, massive investigation of home lending abuses with U.S. and state officials.

The New York fraud lawsuit, filed Oct. 9, sought "hundreds of millions of dollars" from Wells. It accused the bank of falsely certifying loans as eligible for Federal Housing Administration insurance for more than a decade. 

Wells said Thursday that the False Claims Act suit violated the terms of the earlier settlement, which required the bank to pay more than $5 billion in return for a broad release from further legal claims by the government. 

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That release "wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its Federal Housing Administration ... mortgage loan portfolio," the bank contended in a legal filing.

Ellen Davis, a spokeswoman for U.S. Atty. Preet Bharara in Manhattan, declined to comment on the filing by the San Francisco bank, which is the nation's largest mortgage lender.

The previous settlement ended an investigation by 49 state attorneys general and the U.S. Justice Department into allegations that the five biggest home lenders "robo-signed" foreclosure documents and otherwise abused the mortgage process. The bank settlements totaled $25 billion.

In his Thursday filing, Wells Fargo attorney Douglas Baruch asked U.S. District Judge Rosemary Collyer in Washington, D.C., who approved the settlement, to rule that the government must drop the suit in New York.

Baruch argued that the only FHA claims that can be brought against Wells Fargo would involve individual loans on which underwriters knew they were falsely certifying that the mortgage qualified for FHA insurance. 

He said the New York suit instead alleged violations of guidelines in a handbook for FHA lenders -- broad misconduct that was specifically put off limits by the settlement as potential targets for further government lawsuits.

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