M&T Bank Pays $64M after Feds Probe Risky Home Loans

M&T Bank has agreed to a $64 million settlement with the U.S. government over a whistleblower’s allegations they originated loans that did not meet underwriting standards of the Federal Housing Administration (FHA). Whistleblower, Keisha Kelschenbach, stands to receive a cash award of between $6.4 million and $19.2 million for filing the initial False Claims Act (FCA) lawsuit that prompted the investigation.

Whistleblower M&T Employee Lawsuit Spurred Investigation

Filed in 2013, Kelschenbach’s whistleblower lawsuit against M&T Bank stems from allegations that the Buffalo, New York-headquartered bank certified mortgage loans in violation of FHA and Department of Housing and Urban Development (HUD) requirements, resulting in the submission of false claims for payment.

M&T Bank acted as a direct endorsement lender (DEL) with the FHA insurance program. When a DEL approves a loan for FHA insurance and the loan defaults, the loan’s holder submits an insurance claim to the government-funded HUD for the losses. Under the DEL program, the FHA depends on the DEL to review loans for compliance. 

It is the DELs responsibility to properly underwrite and certify mortgages and to implement a quality control protocol that will prevent underwriting errors. The FHA also requires the DEL to self-report all deficient loans it detects.

Allegations of Misrepresentation and Major Underwriting Errors by M&T

According to the Department of Justice (DOJ), from January 2006 through December 2011, M&T Bank allegedly submitted false claims by failing to review a sufficient number of FHA loans and Early Payment Default loans as required by HUD. In addition, M&T’s quality control protocol allegedly disregarded HUD’s self-reporting rules and misrepresented major error rates on originated loans.

Specifically, the FHA-insured loans submitted between 2006 and 2011 showed major errors, yet no errors were reported to HUD until 2008, and after that only 7 errors were reported. As a result, HUD insured hundreds of M&T-approved loans that were not actually eligible under the direct endorsement program and that HUD would not have otherwise insured.

Buffalo, New York-headquartered M&T bank joins the ranks of Wells Fargo, First Tennessee Bank and U.S. Bank, all having paid the federal government large settlements to resolve allegations of violating FHA mortgage lending requirements. “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. “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”

Keisha Kelschenbach’s Whistleblower Reward Likely Seven or Eight Figures

Kelschenbach, a long time M&T employee, filed her lawsuit under the FCA, which enables private citizens to sue on behalf of the government and rewards relators with a 10% to 30% share in any recovery.  Though the amount of Ms. Kelschenbach’s whistleblower award has not yet been announced in this case, it stands to fall between $6.4 million and $19.2 million. The FCA offers substantial cash awards as incentive for those with information on fraud against the government to come forward.

Inspector General David A. Montoya of HUD stated, “This recovery on behalf of the Federal Housing Administration should serve as a reminder of the potential consequences of not following HUD program rules and the value of private citizen assistance, including whistleblowers, in pursuing lenders that violate the rules.”

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