Wells Fargo (NYSE: WFC) said on Wednesday it would pay $1.2 billion to settle claims under a Federal Housing Administration (FHA) lending program, mainly between 2001 and 2010.
The San Francisco based nation’s largest mortgage lender has been accused of misclassifying risky loans for federal insurance by the U.S. Department of Justice since October 2012. Wells Fargo failed to report 6558 loans that did not meet requirements for insurance under the FHA program and failed to properly review early payment defaults, which left a government insurance fund to clean up the mess. As a result, Wells Fargo had to pay out insurance claims on these reckless loans.
Wells Fargo said on Wednesday that it had “reached an agreement in principle” with the U.S. Department of Justice, the U.S. Manhattan Attorney’s Office, the U.S. Attorney’s Office for the Northern District of California, and the U.S. Department of Housing and Urban Development. If approved, the settlement would be one of the biggest fines paid by Wells Fargo related to the crash, which would reduce the company's 2015 net income by $134 million for the extra legal expense.
Some other banks, like Bank of America, Citigroup, Deutsche Bank AG and JPMorgan Chase, have settled similar claims in the past few years. Shares of Wells Fargo fell to $46.51 after the announcement and had a light rebound before markets close.