Wells Fargo, U.S. No Longer Optimistic on Mortgage Pact

Lawyers for the U.S. and Wells Fargo & Co. told a judge they doubt they can reach a settlement in a government lawsuit accusing the bank of home-mortgage fraud, a person familiar with the matter said.

The U.S. sued San Francisco-based Wells Fargo in 2012, claiming it made reckless mortgage loans that defaulted and cost a federal insurance program hundreds of millions of dollars. The government said the bank’s misconduct spanned more than a decade while it participated in the Federal Housing Administration’s program.

The suit by Manhattan U.S. Attorney Preet Bharara is part of a larger effort to recoup losses from defaulted mortgages insured by the FHA. It follows cases against lenders including Citigroup Inc. and Deutsche Bank AG.

At a hearing yesterday, attorneys for both sides told U.S. District Judge Jesse Furman they no longer thought a settlement was within reach, said the person, who wasn’t authorized to speak publicly about the case and asked not to be identified. Both sides had halted the pre-trial exchange of evidence for four months to engage in settlement talks, according to a court filing.

Furman warned lawyers that he wouldn’t give them a four-month extension to collect evidence because they’d agreed on their own to pause the process. The judge said he considered a two-month extension a “gift” to the parties.

“I’m going to give you two months,” Furman said, according to a transcript of the hearing. “You did this at your peril, as far as I’m concerned. And had you asked me four months ago for leave to do this, I might have had a different view, but having taken this upon yourselves, you took the chance and you’re going to suffer some consequences.”

Tom Goyda, a Wells Fargo spokesman, said the bank will continue defending itself against the allegations.

“Our good-faith efforts to work with the federal government on a possible resolution of the complaint have not yet resulted in a settlement,” Goyda said in a statement. “We will move forward with presenting our case in support of our prudent and responsible FHA lending practices.”

Furman last year dismissed some claims because the government filed them too late. The bank had sought dismissal of the entire case.

The FHA program enabled the bank to certify loans for government insurance without prior agency approval.

Jim Margolin, a spokesman for Bharara, declined to comment on the case or the bank’s statement.

In 2012, Wells Fargo agreed to pay $5 billion as its share of a settlement of U.S. and state suit probes into abusive foreclosure practices.

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