M & T Bank Settle Fraud Case for $64M

M & T Bank (MTB) will pay the U.S. government $64M to resolve a lawsuit about housing loans. The case stems from a whistleblower case filed by an ex-M & T underwriter accusing the bank of underwriting fraud. Following its investigation, the Department of Justice said that M & T had awarded loans that failed to meet certain Federal Housing Administration (FHA) requirements.

As part of the deal reached, M & T Bank admitted that between 1/07 and 12/11, it certified mortgage loans that were insured by the FHA even though they did not satisfy the Department of Housing and Urban Development’s (HUD) underwriting requirements and failed to adhere to the federal government’s quality control requirements. M & T Bank also admitted that before 2010, it did not preview every Early Payment Default loan, which are loan that become 60 days past due during the first six months of repayment, nor did it review an adequate FHA loan sample between ’06 and ’11 even though this was an HUD requirement.

M & T also established a quality control process that let it generate preliminary major errors that were much lower than what that rate would have been if the preliminary major error rate were determined more appropriately. The bank did not abide by HUD’s self-reporting requirements even after identifying that a number of FHA insured loans had these “major errors.” It wasn’t until 2008 that it began to self-report loans with errors.

HUD ended up insuring hundreds of loans that the bank had approved but were never eligible for mortgage insurance. As a result, it sustained significant losses when paying insurance claims that were eventually brought.

M & T Bank was a direct endorsement lender (DEL) in FHA’s insurance program. This gave it the authority to underwrite, originate, and endorse mortgages so they could garner FHA insurance. Should a loan approved by a DEL for FHA insurance go into default, the loan’s holder is allowed to turn in an insurance claim to HUD for the losses.

In the wake of the settlement, the whistleblower, Keisha Kelschenbach, could be awarded somewhere between $9.6M to $15M of the amount recovered. She filed her lawsuit under the U.S. False Claims Act, which allows private citizens to file lawsuits for the government and entitles them to a percentage of what is recovered.

Aside from M & T Bank, other U.S. banks that have settled mortgage fraud cases included Wells Fargo (WFC), which paid $1.2B to resolve allegations related to its mortgage underwriting and alleged failure to report thousands of loans that failed to satisfy FHA requirements. Bank of America (BAC) paid $16.6B in the government’s mortgage fraud case. Also settling were Deutsche Bank (DB) and Citigroup (C).

Our mortgage securities law firm works with investors to recoup their losses. Unfortunately, many investors lost too much when the housing bubble burst when the financial crisis hit several years ago. Our securities fraud law firm has been working with institutional investors and high net worth individual investors to recoup their losses.

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M&T Bank settles federal fraud case for $64 million, Democrat and Chronicle, May 13, 2016

Department of Housing and Urban Development

Federal Housing Administration