Wells Fargo & Company said this week in a securities filing that it would pay $1.2 billion to resolve certain civil claims relating to the company’s Federal Housing Administration lending activities.

The Department of Justice filed a civil fraud lawsuit against Wells Fargo in October 2012 in the U.S. District Court for the Southern District of New York to recover civil penalties under the False Claims Act, the Financial Institutions Reform, Recovery, and Enforcement Act, as well as common law damages arising from fraud practices with the Department of Housing and Urban Development (HUD) in connection with Wells Fargo’s mortgage lending business. According to the Justice Department’s complaint, Wells Fargo “engaged in a regular practice of reckless origination and underwriting" of its retail FHA loans from May 2001 through October 2005.

“Moreover, the extremely poor quality of Wells Fargo’s loans was a function of management’s nearly singular focus on increasing the volume of FHA originations (and the bank’s profits), rather than on the quality of the loans being originated,” the complaint stated. Even though Wells Fargo identified over 6,000 materially deficient loans, it chose not to comply with HUD’s self-reporting requirements.

In a Form 8-K filing, issued Feb. 1, Wells Fargo said it had reached an agreement in principle with the Justice Department, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the Northern District of California, and HUD. In connection with the resolution of these matters, Wells Fargo said it has provided for an additional legal accrual which increased operating losses within noninterest expense by $200 million.

“Although the company and the federal government have reached an agreement in principle to resolve these matters,” Wells Fargo stated, “there can be no assurance that the company and the federal government will agree on the final documentation of the settlement.”

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