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M&T Bank to Settle FHA Mortgage Lawsuit for $64 Million

On Friday, M&T Bank Corporation MTB agreed to settle the mortgage litigation filed by the U.S. government regarding the bank’s Federal Housing Administration (‘FHA’) lending program for around $64 million. Notably, the settlement will resolve accusations in a lawsuit filed by a former M&T Bank employee under the False Claims Act.

The U.S. government alleged that in the period from 2006 to 2011, M&T Bank was engaged in “reckless” origination and underwriting of FHA mortgage loans, violating the False Claims Act.

Details

According to the Department of Justice (DOJ), the bank certified such FHA loans that were not in compliance with the requirements of the U.S. Department of Housing and Urban Development (HUD). Moreover, the bank was aware that a significant number of these loans were too risky, faulty, did not qualify under HUD standards and were also ineligible for FHA insurance claims.

Further, the DOJ stated that M&T Bank failed on the review of a sample of FHA loans needed by HUD in the 2006 to 2011 period and misrepresented a “major error” rate on the loans which were obtained through a quality control process.

“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,” the DOJ said.

"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 of the Justice Department's Civil Division. "We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance."

“We made a business decision to settle this matter, without admitting liability, in order to avoid the expense of potential litigation,” M&T Bank said in a statement. “As we have also previously disclosed, this settlement will not have a material impact on our financial condition or results of operations,” M&T Bank added.

Bottom Line

We believe such settlements mitigate legacy issues for the company. We are also encouraged by the bank’s efforts toward gradually resolving such legal overhangs. M&T Bank currently carries a Zacks Rank #3 (Hold).

Other companies that have faced similar charges include Wells Fargo & Company WFC, Citigroup Inc. C and First Horizon National Corporation FHN. All these banks have reached settlements with the Justice Department.

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