M&T Bank Mortgage Fraud: FHA Defects and the Self-Reporting Record

M&T Bank agreed to pay $64 million to resolve mortgage fraud allegations that it knowingly originated and underwrote ineligible loans for Federal Housing Administration insurance. M&T admitted failures in the reviews meant to catch defective loans, calculations that understated preliminary major-error rates, and failures to report deficient loans to the Department of Housing and Urban Development. If you worked with those reviews, the difference between the findings inside the bank and the information reaching the insurer is the heart of this case.

This page follows M&T’s quality-control and self-reporting decisions through to the insurance claims HUD paid. The broader FHA mortgage fraud page explains the relationship between underwriting, endorsement and government payment across lenders.

What Was the M&T Bank Mortgage Fraud Case?

The Justice Department announced the settlement on May 13, 2016, resolving allegations about M&T’s FHA origination, underwriting and quality control. The bank operated as a direct endorsement lender, with authority to originate, underwrite and endorse mortgages for FHA insurance. The FHA did not review each loan for compliance before endorsement, so the lender’s certifications and internal checks carried real weight.

M&T Bank, based in Buffalo, New York, signed the settlement agreement. A former employee brought the False Claims Act qui tam case in the Western District of New York. The agreement covered origination, underwriting, property appraisal and quality control of single-family mortgages insured by FHA from January 1, 2006 through December 31, 2011, with claims submitted on or before July 15, 2015.

HUD, HUD’s Office of Inspector General, the Justice Department’s Civil Division and the U.S. Attorney’s Office for the Western District of New York conducted the joint investigation. The case began with the former employee’s allegations, and the settlement included M&T’s admissions about how its own controls had operated.

What Did M&T Admit About FHA Quality Control?

M&T admitted that it certified loans for FHA insurance that failed HUD underwriting requirements and did not follow FHA quality-control requirements during the covered period. The Justice Department’s account describes failures at several points: which loans got reviewed, how the review results were calculated, and which defects were reported outside the bank. Each affected a different part of the insurer’s view of loan quality.

Early Defaults Went Without Required Reviews

Before 2010, M&T failed to review all early-payment-default loans. The announcement defines those as loans becoming 60 days past due within the first six months of repayment. M&T also admitted that it failed to review an adequate sample of FHA loans between 2006 and 2011.

The early-default review population and the broader FHA sample served different purposes. One brought loans already showing repayment trouble into review. The other tested loan quality more broadly. An insider familiar with the selection records may know which loans reached a reviewer and which never entered the process that generated the reported results.

That is why we look beyond a final error-rate summary. The loan-selection records, completed reviews and findings answer different questions about what the lender examined and what it learned. A summary can look reassuring even when the review behind it was incomplete.

The Calculation Made the Error Rate Look Better

M&T also admitted creating a quality-control process that produced preliminary major-error rates significantly below the rates a straightforward loan count would have produced. The Justice Department described the comparison plainly: loans with preliminary major errors divided by the number of loans reviewed. M&T’s process sometimes produced rates below one percent.

For an insider who worked on the reports, the useful comparison is between the underlying findings and the calculation used to describe them. By M&T’s own admission, we see where the comfort lay: in the calculation.

What Does M&T’s Self-Reporting Record Show?

M&T admitted identifying numerous FHA-insured loans with major errors during the covered period while reporting none to HUD until 2008. After reporting began, it self-reported only seven loans.

The program depended on lenders maintaining controls that could prevent and correct underwriting deficiencies and reporting deficient loans their quality-control programs identified. In M&T’s case, the admitted failures reached both the review process and the reporting process. Finding an error inside the bank and telling the insurer about it were separate decisions.

For a mortgage employee, the working history can be more revealing than the final report alone. The original finding, investigation, management receipt, correction and external report show how information moved through the lender. We connect those stages with the affected loan and its insurance claim when examining mortgage fraud evidence.

How Did the Defects Reach FHA’s Money?

The Justice Department’s account of M&T’s admissions connects the control failures to actual insurance claims. HUD insured hundreds of M&T-approved loans that were ineligible for FHA insurance and that it would not otherwise have insured. HUD then incurred substantial losses when it paid claims on those loans.

That payment followed the direct endorsement structure. When an insured loan defaulted, its holder could submit an insurance claim to HUD for losses resulting from the default. The lender’s earlier underwriting and certification decisions therefore affected a later demand on public money.

For an insider with review records, the connection runs from the particular loan finding to the certification, the reporting decision and the insurance claim. Our work on underwriting defects and false claims follows those decisions together. Knowing how a defect appeared in the review system can help explain what the lender knew before the claim reached HUD.

Where Freedom Mortgage Shows the Same Reporting Problem

Freedom Mortgage’s separate FHA settlement also included admissions about incomplete early-default reviews and failures to report deficient loans. In that case, the Justice Department described review findings that were not circulated to production and underwriting management, along with staffing shortages that impaired timely and complete reviews.

The comparison is useful because it shows why the reporting history belongs beside the loan files. M&T’s distinctive admission concerned the calculation of preliminary major-error rates as well as deficient reviews and self-reporting. Freedom’s account adds the internal distribution of findings: what reviewers learned and what operating management received can be different parts of the same inquiry.

The Whistleblower’s Role in M&T’s Case

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For an employee who knows how loan findings became management reports or reports to HUD, that knowledge can give a case its explanation of what happened inside the lender.

You Saw What the Error Report Left Out

If you worked on loan reviews, error-rate calculations or decisions about what to tell HUD, talk with our whistleblower experts about what you saw. We work beside you to connect that inside knowledge to the FHA claims and build your strongest FHA whistleblower case with mortgage fraud whistleblower lawyers who understand lender certifications and quality-control failures. We stay with you through the pursuit of the government’s recovery.