Wells Fargo & Co. (WFC), the largest U.S. mortgage lender, said federal prosecutors may seek damages and penalties after investigating whether it violated anti- discrimination laws while financing homeowners.

"The Department of Justice has advised Wells Fargo that it believes it can bring claims," the bank said today in a regulatory filing, without elaborating on potential allegations. "We believe such claims should not be brought and continue seeking to demonstrate to the Department of Justice our compliance with fair-lending laws."

Wells Fargo has faced government scrutiny of lending and foreclosures in the wake of the housing crisis as it expands a record 34 percent share of the U.S. mortgage market. The firm was negotiating with the Justice Department last year to resolve a probe into whether it directed blacks to subprime loans, a person familiar with the matter said in July. It also faces a U.S. review of whether it neglected bank-owned homes in minority neighborhoods, a person briefed on the case said in April.

Mary Eshet, a spokeswoman for the San Francisco-based company, declined to comment beyond today's filing. Xochitl Hinojosa, a Justice Department spokeswoman, declined to comment.

Last year's lending inquiry, conducted by the Justice Department's Civil Rights Division, focused on the company's actions during the housing bubble, the person said at the time.

Federal Reserve Fine

The firm settled Federal Reserve claims in July that it steered reliable borrowers into subprime loans and falsified information in mortgage documents. In that case, Wells Fargo agreed to pay an $85 million fine, the largest assessed by the Fed in a consumer-protection enforcement case at the time, and compensate clients.

Employees at the Wells Fargo Financial unit pushed customers who may have been eligible for prime interest rates into loans carrying higher rates intended for riskier borrowers, the central bank said in a July 20 statement announcing the accord. The firm didn't admit wrongdoing in agreeing to settle.

The neglected-home inquiry is linked to claims brought last month by the National Fair Housing Alliance, a non-profit organization.

The group accused Wells Fargo of violating the Fair Housing Act by letting homes Wells Fargo seized in minority neighborhoods remain in a state of disrepair. The NFHA said it reviewed 218 properties in eight cities, finding that properties in white neighborhoods were better maintained and marketed than similar buildings in areas with large black and Hispanic populations.

"Wells Fargo conducts all lending-related activities in a fair and consistent manner without regard to race," Vickee Adams, a bank spokeswoman, said of those claims at the time.

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