Nov. 6 (Bloomberg) -- Wells Fargo & Co. is among firms facing federal scrutiny of mortgage-backed securities sales under a 1989 law that the government is using to extend probes of banks’ roles in the credit crisis, according to two people with knowledge of the matter.
U.S. attorneys in San Francisco have been examining Wells Fargo, the nation’s largest mortgage lender, for more than a year, said one of the people, who asked not to be named because the inquiry isn’t public. Authorities are investigating whether the firm violated the Financial Institution Reform and Recovery Act. The law, known as FIRREA, carries a 10-year statute of limitations and allows the government to sue for fraud affecting a federally insured financial institution.
President Barack Obama set up a task force last year that’s making use of the law, which stems from the savings-and-loan crisis of the 1980s, while examining mortgage-bond underwriting that fueled investor losses and prompted unprecedented government bailouts of banks in 2008. The task force, comprising state and federal agencies, is focusing on about eight banks, a person familiar with the matter said in October.
Bank of America Corp., Zurich-based Credit Suisse Group AG, and New York-based JPMorgan Chase & Co. and Citigroup Inc. also are among firms facing FIRREA investigations, people familiar with those inquiries said in August and October.
Oscar Suris, a spokesman for San Francisco-based Wells Fargo, and Josh Eaton, a spokesman for U.S. Attorney Melinda Haag, declined to comment.
U.S. attorneys in Charlotte, North Carolina, sued Bank of America in August, citing FIRREA. The complaint, seeking unspecified penalties, accused the firm of misleading investors, including federally insured financial institutions. The U.S. also said that alleged misconduct posed financial risks to Bank of America itself by making it vulnerable to civil litigation and regulatory cases. The company has been disputing the claims.
Wells Fargo agreed to pay about $335 million this year to settle legal disputes over mortgage-backed securities held by Fannie Mae and Freddie Mac, the company said today in its quarterly regulatory filing. The accords were reached in the first and third quarters and included those two firms’ regulator, the Federal Housing Finance Agency. The sum was covered by reserves, Wells Fargo said.
The lender, led by Chief Executive Officer John Stumpf, 60, agreed in September to an $869 million settlement with Freddie Mac to resolve disputes over faulty loans sold to the government-backed firm before Jan. 1, 2009.
The six biggest U.S. banks have piled up more than $100 billion in legal costs, including settlements and lawyers’ fees, since the financial crisis, data compiled by Bloomberg show. Wells Fargo’s stock climbed 25 percent this year through yesterday.
To contact the reporter on this story: Keri Geiger in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Peter Eichenbaum at email@example.com