Wells Fargo & Co. (NYSE: WFC) has recently admitted to accusations of wrong practices while insuring thousands of risky mortgages, leveled by the Federal Housing Association. During the month of February, the multinational financial services company has agreed to a $1.2 billion settlement for the charges.
According to the report by the Wall Street Journal, the banking and financial services corporation and its ex-vice president Mr. Kurt Lofrano admitted to deception and improper practices in certifying that the mortgage lending of Wells Fargo fulfilled the requirements of the Federal Housing Association, based on a settlement filing in the federal court of Manhattan. The negligent practices was spread over the period between the year 2001-2008.
The multinational banking and investment firm has admitted that it was not able to report flawed and poorly underwritten loans during the given period. The former vice president of Wells Fargo was accountable for quality assurance and credit risk in relation to mortgage lending.
Aside from this, Wells Fargo has revised its reported income for the fiscal year 2015, lowering it to $22.9 billion, down by $134 million. The financial services company stated during its annual regulatory filing for fiscal year 2015 that it was under additional investigations from the federal government and the state for “certain mortgage lending practices.” According to the Department of Justice, these improper practices has led taxpayers to incur significant losses and the Federal Housing Association had to pay for these flawed loans in claims.
The US Attorney Mr. Preet Bharara stated that the acceptance of Well’s Fargo is a reproof for “years of reckless underwriting” on the part of the lender. The US Attorney also pointed out that, “While Wells Fargo enjoyed huge profits from its FHA loan business, the government was left holding the bag when the bad loans went bust.”
The President of Wells Fargo Home Lending Mr. Franklin Codel said, “It allows us to put the legal process behind us, and to focus our resources and energy on what we do best-serving the needs of the nation’s homeowners.”
Wells Fargo’s acceptance of the charges will most probably affect investors’ confidence, as the financial services firm is one of the leading mortgage lenders in the United States. The additional investigations into the mortgage activities of the financial services corporation, stated in the annual regulatory filing, is said to have led Wells Fargo to accept its wrongdoing.
During the previous month, the multinational bank agreed to give an $8.5 million settlement for its violation of California’s privacy laws. Wells Fargo was accused of recording conversations with customers without their consent.
Considering this recent stream of lawsuits filed against the multinational banking and investment firm, the operating losses brought about these lawsuits may offset the efficiency ratio of Wells Fargo. During the fiscal year 2015, the bank had a 57.8 percent efficiency ratio and anticipates a 55 percent to 59 percent ratio for the first quarter of the current fiscal year. In the following week, Wells Fargo will report its financial results for fiscal year 2016, and market players will definitely pay close attention to the operating losses of the company.