UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA,
Plaintiff,

-against-

WELLS FARGO BANK, N.A.,
Defendant.

The United States of America (the “United States” or the “Government”), by attorney, –
Preet Bharara, United States Attorney for the Southern District of New York, brings°this :;~
complaint against Wells Fargo Bank, N.A. (“Wells Fargo”), alleging as follows:

INTRODUCTION

1. This is a civil fraud action by the United States to recover treble damages and
civil penalties under the False Claims Act, as amended, 31 U.S.C. §§ 3729 et seq., civil penalties
under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”),
12 U.S.C. § 1833a, and common-law damages arising from fraud on the United States
Department of Housing and Urban Development (“HUD”) in connection with Wells Fargo’s
residential mortgage lending business.

2. As set forth more fully below, Wells Fargo, the largest HUD-approved Federal
Housing Administration (“FHA”) residential mortgage lender, engaged in a regular practice of
reckless origination and underwriting of its retail FHA loans over the course of more than four
years, from May 2001 through October 2005, all the while knowing that it would not be
responsible when the materially deficient loans went into default. Rather, as explained below,
under FHA’s Direct Endorsement program, HUD insured the loans that Wells Fargo was
originating. During this four and a half year period, Wells Fargo certified to HUD that over
100,000 retail FHA loans met HUD’s requirements for proper origination and underwriting, and
therefore were eligible for FHA insurance, when the bank knew that a very substantial
percentage of those loans – nearly half of the loans in certain months – had not been properly
underwritten, contained unacceptable risk, and were ineligible for FHA insurance.

3. Moreover, the extremely poor quality of Wells Fargo’s loans was a function of
management’s nearly singular focus on increasing the volume of FHA originations (and the
bank’s profits), rather than on the quality of the loans being originated. Management’s actions
included hiring temporary staff to churn out and approve an ever-increasing quantity of FHA
loans, failing to provide its inexperienced staff with proper training, paying improper bonuses to
its underwriters to incentivize them to approve as many FHA loans as possible, and applying
pressure on loan officers and underwriters to originate and approve more and more FHA loans as
quickly as possible. As a consequence of Wells Fargo’s misconduct, FHA was required to pay
hundreds of millions of dollars in insurance claims on defaulted loans that the bank had falsely
certified met HUD’s requirements, and thousands of Americans lost their homes through
mortgage foreclosures across the country. Accordingly, the Government seeks recovery for its
loss on these materially deficient mortgage loans that Wells Fargo recklessly underwrote and
falsely certified were eligible for FHA insurance.

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