Judge Rejects Wells’ Argument in U.S. Suit over Mortgage Practices

Wells Fargo & Co.’s argument that it can’t be sued by the U.S. over illegal mortgage practices because of an earlier deal with the government was rejected by a federal judge as a misreading of the settlement terms.

U.S. District Judge Rosemary Collyer, in a ruling Tuesday in Washington, said the $25 billion agreement Wells and four other banks made with the Justice Department in April didn’t release Wells from facing allegations by the U.S. attorney in New York in a separate False Claims Act lawsuit filed in October.

“The court finds that the release is clear and unambiguous, as evidenced by its plain language,” Collyer wrote. “The plain language of the release governs, and it does not have the meaning ascribed to it by Wells Fargo.”

Mary Eshet, a spokeswoman for San Francisco-based Wells Fargo, declined to comment on Collyer’s ruling.

Wells Fargo agreed to pay $5 billion as its share of the April settlement over abusive foreclosure practices.

The New York lawsuit alleges misconduct spanning more than a decade related to the bank’s participation in a Federal Housing Administration program. The government claims that Wells Fargo made reckless mortgage loans that caused losses for FHA when they defaulted.

The suit is part of a larger effort by the U.S. to recoup losses from defaulted mortgages that were insured by FHA.