M&T Bank Corp. will pay the U.S. government $64 million to resolve a False Claims Act lawsuit brought by a whistleblower who accused the Buffalo, New York-based bank of knowingly originating and underwriting mortgage loans that failed to meet requirements for FHA-insured loans.
The settlement is the latest in a series of resolutions involving banks that defrauded the federal government by approving risky and unqualified mortgage loans, a practice that grew rampant in the 2000s and contributed to the economic collapse and housing crisis.
According to the U.S. Department of Justice, M&T Bank was a direct endorsement lender in the FHA insurance program and had the authority to originate, underwrite, and endorse mortgages for FHA insurance.
When a direct endorsement lender 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, FHA’s parent agency, for the losses resulting from the defaulted loan.
The FHA does not review loans for compliance with federal rules before endorsing them for insurance, relying instead on banks that are certified and approved to make mortgage loans in accordance with federal regulations. These direct endorsement lenders are required to monitor their operations for compliance and self-report any deficiencies found by their in-house quality control programs.
The whistleblower lawsuit, filed by former M&T Bank employee Keisha Kelschenbach, alleged that M&T Bank failed to comply with FHA origination, underwriting, and quality control requirements from a period between Jan. 1, 2006, and Dec. 31, 2011.
“Mortgage lenders that fail to follow FHA program rules put taxpayer funds at risk and increase the chances of borrowers losing their homes,” said Benjamin C. Mizer, head of the U.S. Justice Department’s Civil Division. “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”
Whistleblowers whose False Claims Act complaints lead to a recovery for the U.S. government are awarded 15 to 30 percent of the total recovery. Ms. Kelschenbach’s award has not yet been determined, but it could earn her between $9.6 million and $19.2 million.
Source: U.S. Department of Justice