The Department of Justice (DOJ) announced earlier this month that M&T Bank Corp. (M&T Bank), a bank headquartered in New York, has agreed to settle False Claims Act (FCA) allegations for $64 million. These allegations concern M&T Bank’s lending practices and claim M&T Bank was knowingly originating and underwriting loans that did not meet certain requirements to be insured by the Federal Housing Administration (FHA).

Some banks have the option to participate as a direct endorsement lender (DEL). DELs are able to underwrite, originate, and endorse mortgages for FHA insurance. If a person defaults on one of these mortgages, the holder of the loan (the bank) may submit an insurance claim to the Department of Housing and Urban Development (HUD), which is the parent agency for the FHA. The problem is, under this program, these loans are not reviewed by the FHA before they are endorsed for FHA insurance.

Therefore, there are strict requirements the loans must meet before a DEL can certify the mortgages for FHA insurance. Moreover, the DEL must maintain a quality control program and report any deficient loans identified by that program.

Principle Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, stated, “Mortgage lenders that fail to follow FHA program rules put taxpayer funds at risk and increase the chances of borrowers losing their homes.”

In this case, the allegations were M&T Bank failed to comply with the requirements set forth by the FHA. In addition, it was alleged that M&T Bank created a quality control system that detected significantly lower major error rates. Moreover, even though M&T Bank did detect numerous loans with major errors, the bank failed to report these loans to HUD. Therefore, HUD insured hundreds of loans that were not qualified for the FHA insurance.

The FCA contains a qui tam provision, which allows private citizens to sue on behalf of the government when they have knowledge of an entity committing fraud against the government. The qui tam provision provides incentives for ordinary citizens to become whistleblowers by reporting the fraud. These incentives include 15 to 30 percent of the monies recovered and protection against retaliation.

This case was originally filed under the qui tam provision of the FCA by a former employee of M&T Bank. Though the share to be awarded to the whistleblower has not yet been determined, the employee stands to receive anywhere from $9.5 million to $19 million as an award for her participation in the case.

Are you aware of fraud being committed against the federal government, or a state government? If so, the FCA can protect and reward you for doing the right thing by reporting the fraud.

If you have any questions about whether you qualify as a whistleblower, please contact an attorney at Beasley Allen for a free and confidential evaluation of your claim. There is a contact form on this website, or you may email one of the lawyers on our whistleblower litigation team: Archie Grubb, Larry Golston, Lance Gould or Andrew Brashier.

Source: U.S. Department of Justice

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