M&T Bank to Resolve False Claims for $64M; Whistleblower Award TBD
M&T Bank Corp. has agreed to pay the United States $64 million to resolve allegations that it knowingly submitted or caused the submission of false claims to the federal government by originating and underwriting mortgage loans that did not meet applicable requirements, the U.S. Department of Justice announced last week.
During the time period covered by the settlement, M&T Bank participated as a direct endorsement lender (DEL) in the Federal Housing Administration (FHA) insurance program. A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to the U.S. Department of Housing and Urban Development (HUD), FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their quality control program.
The settlement resolves allegations that M&T Bank failed to comply with certain FHA origination, underwriting and quality control requirements. As part of the settlement, M&T Bank admitted to the following facts: Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s quality control requirements. Prior to 2010, M&T Bank failed to review all Early Payment Default (EPD) loans, which are loans that become 60 days past due within the first six months of repayment. Between 2006 and 2011, M&T also failed to review an adequate sample of FHA loans, as required by HUD.
Additionally, M&T created a quality control process that allowed it to produce preliminary major error rates that were significantly lower (sometimes below one percent) than what the rate would have been if M&T had calculated its preliminary major error rate by dividing the number of loans with preliminary major errors by the number of loans reviewed to determine what percent of loans contained a preliminary major error.
M&T Bank also failed to adhere to HUD’s self-reporting requirements. While M&T Bank identified numerous FHA insured loans with “major errors” between 2006 and 2011, M&T Bank did not report a single loan to HUD until 2008, and thereafter self-reported only seven loans to HUD. As a result of M&T’s conduct and omissions, HUD insured hundreds of loans approved by M&T that were not eligible for FHA mortgage insurance under the Direct Endorsement program and that HUD would not otherwise have insured. HUD subsequently incurred substantial losses when it paid insurance claims on those loans.
The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by a former employee of M&T Bank, Keisha Kelschenbach. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. The share to be awarded in this case has not yet been determined.
The Chanler Group, in association with the Hirst Law Group, represents whistleblowers who take action under the False Claims Act to report fraud committed against the federal and state governments. We have years of experience representing whistleblower clients who expose every kind of fraud against the government, including health care fraud, contract fraud, and tax fraud. Read more about our expertise in False Claims Act cases and how you can take action.