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Wells Fargo agrees to $20 million settlement with Maryland for role in 2008 financial crisis

Well Fargo & Co. agreed to pay $20 million to Maryland to resolve a dispute over the bank’s role in the financial crisis of 2007 and 2008, Attorney General Brian Frosh announced Tuesday.

The settlement marks the banking company’s largest payoff to date for allegedly misleading investors during the financial crisis. Frosh’s office contended that the company misrepresented the quality of some of the loans supporting its residential mortgage-backed securities.

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Frosh’s office said Tuesday that Wells Fargo issued 119 residential mortgage-backed securities between 2005 and 2009. Similar to bonds, these securities are backed by the interest paid on loans for residences and are often pooled together to minimize the risk of individual default.

Most of the 119 securities contained prime mortgages, but others consisted of Alt-A and subprime mortgages, which are considered riskier to investors, the attorney general’s office said in a news release.

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The company was required to disclose accurate information about the loans issued, but after receiving information that some disclosures were inaccurate through internal and third-party channels, Wells Fargo did not search the mortgage pools to identify and remove other non-complying loans or make note that some did not meet the company’s standards, according to the release.

The company found that many borrowers’ stated income exceeded the income they provided to the Internal Revenue Service and that many deals contained loans that did not meet Wells Fargo’s origination standards.

“While we don’t agree with the state’s view on these matters, we are pleased to be able to put these legacy issues behind us,” Wells Fargo said in a statement Monday.

In his statement, Frosh said the company’s actions directly contributed to the global banking crisis, which sparked a recession.

"This settlement will recoup losses that Maryland suffered through Wells Fargo RMBS investments while also providing additional funds for the State,” he said.

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