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Wells Fargo Loses Bid to Block FHA Mortgage-Fraud Lawsuit

JUN 10, 2014 12:47pm ET
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Wells Fargo & Co. failed to convince a U.S. appeals court that a multibank mortgage settlement in 2012 barred the government from suing over home lending practices it claims led to hundreds of millions of dollars in federal insurance payouts.

The language of the national mortgage settlement outlines rights the government retained to pursue further action against Wells Fargo and the bank's "effort to escape those contractual limitations fails," according to a ruling today by a three-judge panel of the U.S. Court of Appeals in Washington.

The ruling, which upholds a lower court decision, could increase pressure on San Francisco-based Wells Fargo to settle a Federal Housing Administration lawsuit filed in Manhattan federal court in October 2012, claiming substandard mortgages the bank made led to defaults covered by the agency’s insurance.

Ancel Martinez, a Wells Fargo spokesman, declined to immediately comment on the ruling.

Three other banks that joined the 2012 agreement, which involved primarily loan-servicing practices, subsequently paid a total of almost $2 billion to resolve complaints similar to the one Wells Fargo decided to fight.

The judge overseeing the Wells Fargo case in New York rejected the bank’s bid for dismissal in September. He said that the lower-court ruling in Washington, clarifying the language of the $25 billion settlement, didn’t bar another FHA suit over what the government argues are different grounds.

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