A new government lawsuit against Wells Fargo that accuses the megabank of improprieties in FHA underwriting could cost the firm upwards of $750 million in damages, according to a new report from Sandler O’Neill.
But in its analysis Sandler notes that the financial impact of such a payout—if it happens—would be a “pretty modest” for Wells which is well heeled financially. (The bank reports third quarter earnings on Friday.)
The complaint seeks damages and civil penalties under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act. (The False Claims Act allows for treble damages.)
The Department of Justice accuses the nation’s largest lender of fraud in regard to 10 years of underwriting on FHA-backed mortgages. In question is Wells’ behavior on 6,320 loans.
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In the research report Sandler takes the $190 million and estimates the number could be as large as $250 million (because the government mentions unspecified millions more in loans) then triples it, arriving at the $750 million figure.
“Tax-effecting” $750 million “implies” a final cost of $490 million, writes Sandler’s analysts. “Instead, the headline risk is likely to be the bigger issue.”
When the lawsuit was announced Tuesday afternoon Wells adamantly denied the charges, noting that at times its FHA delinquency rate has been as low as half the industry average.
Wells is both the nation’s largest lender and servicer, according to figures compiled by National Mortgage News and the
