Government wins round in suit accusing Wells Fargo of FHA abuse

A government lawsuit accusing No. 1 home lender Wells Fargo & Co. of defrauding a federal mortgage-insurance program is shaping up as a knock-down battle between the San Francisco bank and the U.S. Justice Department.

Wells Fargo lost a round Monday, when U.S. District Judge Rosemary Collyer in Washington refused the bank’s request to dismiss the federal action. But the bank, which has vehemently denied wrongdoing, said Tuesday it might appeal Collyer’s ruling and would continue to press its counter-claims against the lawsuit in New York.

The False Claims Act lawsuit, seeking “hundreds of millions of dollars,” is one in a series of government attempts to recover losses related to the mortgage meltdown.

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The suit, filed Oct. 9 by U.S. Atty. Preet Bharara in Manhattan, said Wells falsely certified loans as eligible for Federal Housing Administration insurance for more than a decade.

Wells officials protested that their FHA lending had been audited annually to the government’s satisfaction. And in its filing with Collyer, the bank said a release signed in a $5-billion earlier mortgage settlement by Wells “wiped the slate clean” as far as FHA liability, except for a few narrow circumstances.

The previous settlement ended an investigation by 49 state attorneys general and the Justice Department into allegations that the five biggest home lenders “robo-signed” foreclosure documents and otherwise abused the mortgage process. The bank settlements totaled $25 billion.

Collyer ruled that the robo-signing release didn’t exempt Wells from facing Bharara’s allegations. “The plain language of the release governs,” she wrote, “and it does not have the meaning ascribed to it by Wells Fargo.”

In a statement Monday, the bank said: “Wells Fargo respectfully disagrees with the Court’s interpretation of the scope of the release, and is considering its options regarding appeal.”

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