Banks and mortgage lenders be forewarned: federal prosecutors can use your internal quality-control reports to support fraud allegations.
Wells Fargo’s quality-control procedures will take center stage in a closely watched case that could go to trial this summer, in which federal prosecutors have accused the nation’s largest mortgage lender of “shoddy underwriting” of government-insured loans.
Prosecutors allege that Wells engaged in more than 10 years of “reckless” origination and underwriting of Federal Housing Administration loans. The case hinges on the knowledge that Wells’ executives obtained from their own review processes.
Focusing on the quality control is a way for the government to allege knowledge by bank executives without necessarily showing examples of outright fraud, some lawyers said. There is concern in the industry that quality-control programs, even strong ones, will make banks vulnerable in court.