A federal lawsuit against Wells Fargo & Co. alleging noncompliance on government-insured loans will move forward, an appeals court ruled Tuesday.
The lawsuit, filed in October 2012, alleges that the lender didn’t comply with quality control requirements of the Federal Housing Administration’s direct endorsement lender program.
The complaint was filed under the False Claims Act in U.S. District Court for the Southern District of New York.
The non-compliance allegedly continued for a decade and cost FHA hundreds of millions of dollars in insurance claims on thousands of loans.
“Wells Fargo failed to report to HUD even a single loan with material underwriting violations or fraud until after a HUD lender review in 2005,” a statement from the U.S. Department of Justice said at the time. “When HUD inquired about Wells Fargo’s self-reporting practices in 2005, Wells Fargo attempted to cover up its misdeeds by falsely suggesting to HUD that the bank actually had been reporting bad loans.”
Shortly after the complaint was filed, Wells Fargo disputed its liability, claiming that the servicer settlement reached in February 2012 released it from further liability to the United States.
The San Francisco-based company went back to U.S. District Court for the District of Columbia — where the earlier settlement was approved — and sought a ruling that the government must drop the suit in New York.
The federal judge in Washington, D.C., denied Wells Fargo’s motion.
So Wells Fargo appealed that decision to the U.S. Court of Appeals for the District of Columbia Circuit.
On Tuesday, the district court’s decision was affirmed.
The decision noted that while “some portions of the New York complaint tread on the verge of the released claims,” it is up to the federal court in Manhattan “to ensure that the claims are litigated in a manner that comports with the Release’s limitations.”
