Wells Fargo (WFC) contends that a federal lawsuit over its lending practices before and after the housing crisis contravenes the terms of the multistate mortgage settlement.

The $25 billion pact among Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), Ally Financial, Wells, the Justice Department and 49 states that a federal judge approved in April bars the lawsuit, the $1.3 trillion-asset Wells said in a court filing Thursday. The suit, filed in October by the Manhattan U.S. Attorney's office, accuses Wells of wrongdoing in connection with loans insured by the Federal Housing Administration over roughly a decade beginning in May 2001.

The settlement "wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its Federal Housing Administration mortgage loan portfolio, among other areas," Wells' lawyers wrote in papers filed in Washington with U.S. District Judge Rosemary Collyer, who approved the settlement. "Wells Fargo committed billions to the United States in [the settlement] and should be able to rely on the United States to observe and abide by its commitments and representations."

The settlement bars the government from bringing additional cases against Wells based on the FHA program unless the government can show that an individual Wells underwriter "knowingly" certified that a specific loan met FHA eligibility requirements when it did not, according to Wells. 

A spokeswoman for the U.S. Attorney's office in Manhattan declined to comment on Wells' filing.

The suit seeks unspecified damages for hundreds of millions of dollars in FHA insurance claims the government paid for mortgages that Wells allegedly originated, underwrote and certified wrongfully that later went into default.

"First, between May 2001 and October 2005, Wells Fargo engaged in a regular practice of reckless origination and underwriting of its retail FHA loans," the U.S. Attorney's office charged in a complaint filed Oct. 9 in U.S. District Court in New York. "Nonetheless, Wells Fargo certified that over 100,000 retail FHA loans met HUD's requirements and therefore were eligible for FHA insurance."

According to the government, over a roughly six-year period beginning in October 2005, Wells Fargo also concealed thousands of loans from HUD that it was required to report even though its reviews found the loans failed to meet FHA underwriting standards.

"As a result of Wells Fargo's intentional concealment of the 6,320 loans internally identified as containing material violations, Wells Fargo avoided indemnification to HUD on approximately $190 million dollars in FHA benefits paid on claims for defaults on those loans," the suit said.

Wells has asked Collyer to block the government from pursuing the New York case. Wells expects the government to oppose the request.

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