Wells Fargo & Co. will pay Maryland $20 million in settlement of claims the mortgage company misled investors – including state and local government entities – regarding the durability of its residential loans in the years preceding the Great Recession.
Wells Fargo admitted no wrongdoing in agreeing to the settlement of administrative claims brought by the Securities Division of the Maryland Attorney General’s Office.
The division alleged the San Francisco-based company lowered its financial standards for approving mortgage applications between Jan. 1, 2005, and Jan. 1, 2009, without telling its investors, who believed they would see a healthy return as these home loans were repaid with interest.
Many of these loans, however, were not repaid — resulting in losses for Wells Fargo’s investors in residential mortgage-backed securities and contributing to a national economic crisis in 2008 that led to the failure of many investment banks and a controversial federal bailout of others, the attorney general’s office said.
“Wells Fargo allegedly misrepresented the quality of some of the loans backing its RMBS,” Attorney General Brian E. Frosh said in a statement Tuesday announcing the settlement.
“Wells Fargo’s misconduct contributed to the 2008 financial crisis,” Frosh added. “This settlement will recoup losses that Maryland suffered through Wells Fargo RMBS investments while also providing additional funds for the state.”
Wells Fargo also issued a statement Tuesday.
“This agreement resolves an investigation by the Maryland attorney general regarding claims related to Wells Fargo residential mortgage-backed securities activities that occurred more than a decade ago,” the company stated. “While we don’t agree with the state’s view on these matters, we are pleased to be able to put these legacy issues behind us.”
The Securities Division alleged Wells Fargo violated the state Securities Act by making “untrue statements of material fact” and “omitted material facts” in dealing with investors.
Under the settlement agreement, the attorney general’s office will distribute the $20 million in restitution to certain investors, including the governmental entities; for costs incurred in providing restitution; and to the state’s Mortgage Loan Servicing Practices Settlement Fund.
The fund, created by statute, pays for legal assistance in foreclosure proceedings; investigations of fraud in mortgage lending; assistance for people harmed by mortgage fraud; foreclosure prevention, remediation and restitution; and programs to address community blight.