U.S. probing Golden West lending, sale: prosecutor

SAN FRANCISCO (Reuters) - The government is investigating if homeowners were misled by California bank and mortgage issuer Golden West Financial, which was acquired by Wachovia Corp -- another possible victim.

U.S. attorney Joseph Russoniello on Wednesday said by telephone that the Securities and Exchange Commission and the Justice Department are "looking at the sale of Golden West as well as Golden West's lending practices."

Russoniello said that the government is looking at the Golden West deal for two reasons.

First, the government wants to know if Golden West itself misled borrowers in its lending practices.

Second, the government is asking what Golden West told Wachovia as it was being acquired, including "representations as to the quality of the portfolio."

Russoniello said the probe is one of a number undertaken by a task force that since May has been looking into possibly fraudulent practices in the housing market -- including fraudulent applications by borrowers, as well as predatory lending practices.

In October, Wells Fargo agreed to buy Charlotte, North Carolina-based Wachovia for $15.1 billion, without any government backing to cover loan losses it said could reach $74 billion.

A spokeswoman for Wachovia, a spokeswoman for Wells Fargo and a spokesman for the SEC all declined comment.

Wells Fargo's stock closed at $24.40, down 10 percent, and Wachovia's closed at $4.57, down 13 percent.

(Reporting by Alexandria Sage and David Lawsky; Editing by Gary Hill)