U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
OFFICE OF INSPECTOR GENERAL
September 19, 2016
MEMORANDUM NO:
2016-CF-1804
Memorandum
TO: Dane M. Narode
Associate General Counsel, Office of Program Enforcement, CACC
//signed//
FROM: Christeen Thomas
Director, Joint Civil Fraud Division, GAW
SUBJECT: Final Civil Action: M&T Bank Settled Allegations of Failing To Comply With
HUD’s Federal Housing Administration Loan Requirements
INTRODUCTION
The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), assisted the U.S. Department of Justice, Washington, DC, and the U.S. Attorney’s Office
for the Western District of New York in a civil investigation of Manufacturers and Traders Trust
Company, also known as M&T Bank, successor by merger to M&T Mortgage Corporation. Our
investigation was ongoing when a qui tam1 action was filed in the U.S. District Court for the
Western District of New York. M&T Bank is a Federal Housing Administration (FHA)-
approved mortgage lender with its principal place of business located in Buffalo, NY.
BACKGROUND
FHA is a component of HUD. It provides mortgage insurance for a person to purchase or
refinance a principal residence. The mortgage loan is funded by a lending institution, such as a
mortgage company or bank, and the mortgage is insured by FHA.
1
The False Claims Act allows private persons to file suit for violations of the False Claims Act on behalf of the
Government. A suit filed by an individual on behalf of the Government is known as a “qui tam” action, and the
person bringing the action is known as a “relator.” If the Government prevails in a qui tam action, the court
may award the relator a share of the False Claims Act award, based on the contributions the relator made to the
investigation.
Joint Civil Fraud Division
400 State Avenue, Suite 501, Kansas City, KS 66101
Visit the Office of Inspector General Web site at www.hudoig.gov.
HUD’s direct endorsement program authorizes private-sector mortgage lenders to approve
mortgage loans for FHA insurance. Lenders approved for the program must follow various FHA
requirements, including providing annual and per loan certifications that the lender complied
with these requirements when underwriting and approving loans for FHA insurance.
M&T Bank had participated in the FHA program since 1992 and became a direct endorsement
lender in 1993. As a direct endorsement lender, M&T Bank was authorized by HUD to originate
and underwrite mortgage loans on HUD’s behalf, including determining a borrower’s
creditworthiness and whether the proposed loan met all applicable requirements. When a
borrower defaults on an FHA-insured loan underwritten and endorsed by a direct endorsement
lender, such as M&T Bank, the lender (or its representative) has the option of submitting a claim
to HUD to compensate the lender for any loss sustained as a result of the default. Therefore,
once a mortgage loan is endorsed for FHA insurance, HUD insures the risk of the borrower’s
defaulting on that mortgage, which is realized if an insurance claim is submitted.
RESULTS OF INVESTIGATION
On March 19, 2013, a former employee of M&T Bank filed a qui tam complaint, alleging
improprieties in M&T Bank’s loan origination and underwriting practices in violation of the
False Claims Act. Based on further investigation, the Government discovered that M&T Bank
submitted false certifications to HUD concerning compliance with program rules and certain
endorsed loans between January 2006 and December 31, 2011, in violation of these rules.
On May 9, 2016, M&T Bank entered into a settlement agreement with the Government to pay
$64 million to avoid the delay, uncertainty, inconvenience, and expense of lengthy litigation of
certain civil claims the Government contended that it had against M&T. As part of the
settlement, M&T Bank agreed that it engaged in certain conduct in connection with its
origination, underwriting, property appraisal, and quality control of certain single-family
residential mortgage loans insured by FHA.2 The settlement was neither an admission of liability
by M&T Bank nor a concession by the United States that its claims were not well founded.
As a result of M&T Bank’s conduct, HUD alleged it insured hundreds of loans approved by
M&T Bank that were not eligible for FHA mortgage insurance under the direct endorsement
program and that HUD FHA would not otherwise have insured. HUD incurred substantial losses
when it paid insurance claims on the loans covered by the settlement agreement.
Of the total $64 million settlement, HUD FHA received $43.35 million, and the remaining
portion was to be paid to the relator and other federal entities.
2
Loans covered in the settlement agreement included loans insured by FHA between January 1, 2006, and
December 31, 2011, that resulted in claims submitted to HUD on or before June 15, 2015, excluding origination
or underwriting of home equity conversion mortgages under 12 U.S.C. (United States Code) 1715z-20 and
streamline refinances under 12 U.S.C. 1715n(a)(7).
2
RECOMMENDATION
We recommend that HUD’s Office of General Counsel, Office of Program Enforcement,
1A. Acknowledge that $43,350,000 of the $64,000,000 in the attached settlement represents an
amount due HUD.
As of the date of this memorandum, the settlement amount due HUD had been paid in full.
Therefore, no further action is required by the Office of General Counsel. At issuance of this
memorandum, HUD OIG will enter a management decision into HUD’s Audit Resolution and
Corrective Action Tracking System, along with the supporting payment information to show that
final action was completed.
3
M&T Bank Settled Allegations of Failing To Comply With HUD's Federal Housing Administration Loan Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)