The Department of Justice (DOJ) reported settlements and judgments totaling over $543 million in the areas of housing and mortgage fraud in 2017. The excessive number of loan defaults and fraud of this nature in the mortgage and banking industry led to a financial crisis not seen since the early part of the 20th century. Said Acting U.S. Attorney Brian Stretch, “Misconduct in the mortgage industry helped lead to a destructive financial crisis that spanned the globe.”
In the largest banking and mortgage settlement in U.S. history, in 2014 Bank of America was ordered to pay back the government $17 billion for allegedly defrauding government agencies, investors, and mortgage holders. The company acknowledged that it sold billions of dollars of Residential Mortgage-Backed Securities (RMBS) without disclosing to investors key facts about the quality of these loans. When the RMBS collapsed, federally insured financial institutions (i.e., the American taxpayer) suffered billions of dollars in losses. The bank also admitted that it originated risky mortgage loans and lied about the quality of those loans to Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA).
In the largest recovery for loan origination violations in the history of the FHA, Wells Fargo in 2016, agreed to pay $1.2 billion. The bank admitted that it certified to the Department of Housing and Urban Development (HUD), from 2001 through 2008, that certain residential home mortgage loans were eligible for FHA insurance when the company knew they were not. This resulted in taxpayers having to pay FHA insurance claims when some of those loans defaulted.