The U.S. government is suing Wells Fargo (NYSE:WFC), accusing the bank of providing mortgage loans backed by a Federal Housing Administration (FHA) program to unqualified applicants. The government is seeking unspecified damages and penalties under the False Claims Act. A potential award in the governments favor could be in the hundreds of millions of dollars, Bloomberg noted.
Government regulators are investigating mortgage lending practices for compliance with FHA standards. The FHA has spent $37 billion covering claims on failed mortgages over the last four years.
Wells Fargo has emerged as the leading U.S. mortgage lender, accounting for 33.1% of mortgages approved during the first half of 2012. The second-ranked lender, JPMorgan Chase (NYSE:JPM) provided 11.1% of mortgages.
The lawsuit is the latest legal action against Wells Fargo by the federal government. The bank settled claims of racial discrimination in lending in July, paying $125 million in fines and another $50 million to assist victims.
Wells Fargo shares rose fractionally in mid-day trading on Wednesday.