Another Bank Settles False Claims Act Allegations

Just one month after Freedom Mortgage resolved its Federal Housing Administration (FHA) allegations, M&T Bank Corp., agreed to pay the U.S. to resolve claims that it violated the False Claims Act by knowingly originating and underwriting single-family mortgage loans insured by the FHA that did not meet the mortgage insurer's requirements.

The U.S. Justice Department announced the settlement Friday, noting that Buffalo, New York-headquartered M&T Bank has agreed to pay $64 million to resolve the False Claims Act violation allegations.

“Mortgage lenders that fail to follow FHA program rules put taxpayer funds at risk and increase the chances of borrowers losing their homes,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”

The Justice Department reported that 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.
• 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.

M&T Bank was not immediately available to comment at the time of publication of this article.

“M&T Bank bypassed its responsibility to originate and underwrite mortgages in accordance with the standards required by the FHA,” said First Assistant U.S. Attorney James P. Kennedy Jr. for the Western District of New York. “This case demonstrates that when a financial institution takes such a detour, we will work to ensure that it does not bypass the consequences of that conduct.”

HUD General Counsel Helen Kanovsky noted, “It is critically important that FHA-approved lenders comply with HUD’s underwriting standards and originate mortgages that borrowers can sustain. We are pleased M&T Bank worked with the Department of Justice and HUD to arrive at an agreeable settlement that protects FHA’s insurance fund.”