M&T Bank has agreed to pay the federal government $64 million to settle a lawsuit and settle civil charges that it misled the government into insuring hundreds of risky Federal Housing Administration (FHA) loans.

The U.S. Department of Justice (USDOJ) said the settlement was agreed upon over allegations that between Jan. 1, 2006, and Dec. 31, 2011, M&T did not comply with certain HUD underwriting requirements for origination, and quality control policies required for FHA mortgages.

The USDOJ lawsuit was the result of a former bank employee, Keisha Kelschenbach, who filed a lawsuit Under the False Claims Act, in which a private citizen can sue on behalf of the government and share in the recovery.

According to the USDOJ, 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 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.

“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.”

“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.”

Erik Sandstrom
LoanSafe's Mortgage Expert
I'm a Senior Loan Officer and LoanSafe mortgage expert. If you need a live rate quote, or need help getting a new mortgage, please call me direct anytime at 619-379-8999.