HUD IG: Wells Fargo Should Indemnify FHA

Due to lax underwriting on four defaulted Federal Housing Administration loans, the HUD inspector general is recommending that Wells Fargo Home Mortgage indemnify the FHA for the full unpaid balance on the loans -- $816,000. "Wells Fargo could not provide justification for the [Delaware] branch office's noncompliance with Department of Housing and Urban Development requirements," the auditors' report says. The IG auditors found that Wells Fargo's branch office approved the underwriting of two loans without verifying the rental payment histories of borrowers and another loan that overstated the borrower's overtime income. On an FHA 203(k) rehabilitation loan, part of the loan proceeds paid for labor performed by the borrower, which violates FHA rules. The four loans were in default within two years of origination. HUD officials can accept, amend, or reject the HUD inspector general's recommendations. As one of the largest FHA lenders, "we are audited periodically by the Office of Inspector General," Wells Fargo said. When loan-level issues are uncovered, Wells Fargo, OIG, and HUD officials "arrive at the appropriate resolution, such as indemnification or reimbursement."