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M&T whistleblower to share in $64 million fine for loan rules violations

M&T Bank Corp. will pay $64 million to the U.S. government to resolve a whistleblower lawsuit that claimed the bank failed to follow rules for loans insured by the Federal Housing Administration.

And a former M&T employee from the Buffalo area who filed a lawsuit that launched the case expects to receive at least $9.6 million of the settlement.

The bank was accused of knowingly originating and underwriting mortgage loans insured by the FHA – which is part of U.S. Housing and Urban Development – that did not meet requirements.

The M&T settlement is the latest in a string of agreements the government has reached with 15 lenders over similar allegations. The other settlements resulted in much larger fines.

M&T “made a business decision to settle this matter, without admitting liability, in order to avoid the expense of potential litigation,” M&T spokesman C. Michael Zabel.

“As we have also previously disclosed, this settlement will not have a material impact on our financial condition or results of operations,” Zabel said. “We are the 16th mortgage lender to settle such claims, which relate to matters that went back as far as 10 years. Looking forward, we will continue as a leading and responsible provider of home loans in the communities we serve, including as a FHA program participant.”

The government focused on how the government-backed loans were approved.

“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 Justice Department’s civil division, in a statement. “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”

Earlier this year, the Justice Department announced Wells Fargo agreed to pay $1.2 billion to settle similar allegations. HUD said that was the largest recovery for loan origination violations in FHA’s history.

Among the other banks to reach settlements over similar allegations in recent years – for widely varying amounts – were Bank of America ($800 million), Chase ($614 million), Deutsche Bank ($202 million) and Citigroup ($158 million).

The Justice Department said it arrived at those different figures by taking into account the losses to the agency, the False Claims Act’s multiple damages and penalties, and other factors arising from the facts and legal issues involved. The False Claims Act allows a private citizen to sue on behalf of the government and share in the recovery.

During the period covered by M&T’s settlement, the bank participated as a “direct endorsement lender” in the FHA insurance program, the Justice Department said. Lenders with that status have the authority to originate, underwrite and endorse mortgages for FHA insurance.

If such a lender approves a mortgage loan for FHA insurance, and the loan later defaults, the holder of the loan may submit an insurance claim to HUD for losses stemming from the defaulted loan, the Justice Department said.

Federal officials explained that under the direct endorsement lender program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance.

M&T was accused of violating the False Claims Act, under which a private citizen can sue on behalf of the government and share in the recovery.

The allegations resolved by the settlement arose from a whistleblower lawsuit filed in 2013 by Keisha Kelschenbach, a former senior underwriter at M&T. She worked for the bank from 1996 until April 2012, said Jonathan Ferris, an attorney at Thomas & Solomon LLP, a Rochester firm that represented her in the case.

“M&T wanted to approve as many FHA loans as possible, but at the same time, made almost no effort to comply with the FHA’s rules and quality control requirements,” Kelschenbach said in a statement released by Thomas & Solomon LLP, a Rochester firm that represented her in the case.

Thomas & Solomon said Kelschenbach is entitled to between 15 percent and 25 percent – or $9.6 million to $15 million – of the $64 million. The Justice Department has not yet determined how much she will receive, said Jonathan Ferris, an attorney at the firm.