Wells Fargo agreed to pay a $2.09 billion penalty to settle charges that the bank misrepresented the quality of residential mortgage-backed securities to investors, costing them "billions of dollars" in losses, the Justice Department said Wednesday.
"This settlement holds Wells Fargo accountable for actions that contributed to the financial crisis," Jesse Panuccio, acting associate U.S. attorney general, said in a Justice Department news release.
The Justice Department claimed that starting in 2005, Wells Fargo officials knew that "a substantial portion of its stated income loans contained misstated income," but the bank reported to investors false debt-to-income ratios of the loans it sold. Wells Fargo also did not disclose the income discrepancies its controls had identified and took steps to protect the bank by screening them out of its own loan portfolio held for investment, according to the Justice Department.
"Wells Fargo sold at least 73,539 stated income loans that were included in RMBS between 2005 to 2007, and nearly half of those loans have defaulted, resulting in billions of dollars in losses to investors," the Justice Department said in the release.
Wells Fargo did not admit to wrongdoing as part of the settlement, according to both the Justice Department release and a statement on Wells Fargo's website.
In the Wells Fargo statement, CEO Tim Sloan said the company was "pleased to put behind us these legacy issues regarding claims related to residential mortgage-backed securities activities that occurred more than a decade ago."
