Wells Fargo Under Investigation For Alleged Role In Low-Income Housing Tax Credit Fraud
Want to get a jump-start on upcoming deals? Meet the major players at one of our upcoming national events!
At a time when Wells Fargo is buying ads to try to rebuild its image, and when it is operating under an asset cap imposed by the Federal Reserve for "widespread consumer abuses," the bank is under investigation for possible fraudulent activities in the low-income housing industry.
The U.S. Department of Justice is looking into whether Wells Fargo colluded with affordable housing developers to underbid for low-income tax credits.
The tax-credit investigation started in Miami, but has since been referred to the Justice Department for a wider probe. The U.S. Attorney's office in Miami convened a grand jury to look into the matter, Bloomberg columnist Stephen Gandel reports, citing anonymous sources.
The investigation reportedly involves other banks as well, and includes subpoenas issued to Wells Fargo, as well as developers the bank did business with.
"Federal government agencies have undertaken formal or informal inquiries or investigations regarding the manner in which the Company purchased, and negotiated the purchase of, certain federal low income housing tax credits in connection with the financing of low income housing developments," Wells Fargo stated in its second quarter 10-Q filing with the Securities and Exchange Commission earlier this month, but did not offer any further details.
Wells Fargo allegedly colluded with developers to drive down the price of low-income tax credits over the last decade. The bank is one of the largest buyers of such credits; in 2017, Wells Fargo said that it bought about $9B worth over the previous five years, Bloomberg reports, citing the bank itself.
Paying less for tax credits has the effect, for a bank or another buyer, of increasing the return the buyer can make on the credits. For their part in such a collusion, developers can be offered better loan terms by a bank or win financing for a deal that might not otherwise qualify for it.
The lowballing of tax credit bids also has the effect of increasing the cost of providing the tax credit — an extra cost borne by taxpayers.
“We see potential anomalies in the purchase prices that suggest theft,” Assistant U.S. Attorney Michael Sherwin told Bloomberg.
The bank has had a bumpy couple of years as of late. In 2016, Wells Fargo agreed to pay $1.2B to settle claims it engaged in mortgage insurance fraud through the Federal Housing Administration program. The federal government sued the bank in 2012, alleging "reckless" underwriting of government-backed loans between 2001 and 2010.
The bank has also been embroiled in a fake-accounts scandal, problems involving abuses in its mortgage and auto lending operations, the repossession of service members’ cars and a wealth management probe, American Banker reports.
Recently, the bank revealed that it denied about 625 customers a loan modification they should have qualified for, and as a result, about 400 of those borrowers had their homes foreclosed.