U.S. Bancorp, otherwise known as U.S. Bank, must pay $200 million to the U.S. Department of Justice (DOJ) for accepting bad mortgage-loan applications and then collecting insurance through Federal Housing Association programs. According to The Wall Street Journal, U.S. Bank is one of many banks to defraud the FHA in mortgage practices which set off a chain of events related to the recession of 2008, and the infamous bailout of banks across the U.S.
According to Bankrate.com, the FHA is part of the U.S. Department of Housing and Urban Development (HUD) which has the responsibility of insuring mortgage loans in case a borrower defaults on the loan. Banks are then able to offer competitive interest rates and flexible loan requirements. Bankrate.com lists seven crucial facts on FHA loans, with some facts stating a borrower must have a credit score of at least 580 as of September 2010, must purchase two insurance premiums, and must either pay for closing costs, or face a higher interest rate if a lender chooses to do so.
The Wall Street Journal reported on Monday that the Justice Department had confirmed U.S. Bank must pay $200 million as a civil penalty for failure to meet underwriting FHA requirements between 2006 and 2011. Assistant Attorney General of the DOJ’s civil division, Stuart Delery, had said the misuse of this program not only wasted taxpayer money, but also “inflicted harm” on both homeowners and the housing market. The Wall Street Journal continued to list other banks that had reached a settlement with the DOJ, including J.P. Morgan Chase Co., Bank of America and Citigroup. Interestingly, the report also indicated that U.S. Bank shares are up 7 percent this year.
Some may find it odd that U.S. Bank would be doing well after being forced to pay $200 millions to the Justice Department, but according to a website called The Motley Fool, there are three reasons why investors should still pay premium price for the bank’s stock. These reasons include “Core Business Strength,” “Underlying Asset Quality” and “Strong Performance Metrics.” To justify these key reasons, The Motley Fool report explained that U.S. Bank has strong loan and deposit growth, its “net-charge offs” have stayed extremely low, and the bank’s returns on common equity (though declining) is still at 14.6 percent for the first quarter of 2014. The report also noted that, according to the Federal Reserve, U.S. Bank is the ninth largest bank in the U.S., with assets totaling around $371 billion.
Though U.S. Bank has been penalized and must now pay $200 million to the Justice Department for accepting FHA loan applications which did not meet FHA requirements, it appears the bank is steadily holding onto billions of assets and customers. Not only that, in a separate report from The Wall Street Journal, an U.S. Bancorp Center was awarded The Outstanding Building of the Year (TOBY) award for a 929,000 square foot tower located in downtown Minneapolis.
As it turns out, the property is actually owned by Atlanta-based Piedmont Office Realty Trust. The Wall Street Journal reported that David Wright, the Vice President of US Bank’s Corporate Real Estate division, is also the President of Greater Minneapolis’ Building Owners and Managers Association (BOMA). Wright said that US Bank and Piedmont have a “long-standing relationship and partnership,” and that US Bank looks forward to continuously supporting Piedmont and the U.S. Bancorp Center located in Minneapolis. How interesting, considering BOMA gave the award to US Bank affiliates who share a common person, namely, David Wright. It sure pays to know the right person. Nonetheless, U.S. Bank must still dish out the $200 million to the Justice Department.
Opinion by Liz Pimentel