WHISTLEBLOWER QUOTE OF THE DAY:

“This recovery on behalf of the Federal Housing Administration should serve as a reminder of the potential consequences of not following HUD program rules and the value of private citizen assistance, including whistleblowers, in pursuing lenders that violate the rules.”

Inspector General David A. Montoya of the Department of Housing and Urban Development
 

DAILY WHISTLEBLOWER HEADLINES:

DOJ: M&T Bank Agrees to Pay $64 Million to Resolve Alleged False Claims Act Liability Arising from FHA-Insured Mortgage Lending

M&T Bank Corp. (M&T Bank) has agreed to pay the United States $64 million to resolve allegations that it violated the False Claims Act by knowingly originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable requirements, the Justice Department announced today. M&T Bank is headquartered in Buffalo, New York.

“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, head of the Justice Department’s Civil Division. “We will continue to hold lenders accountable for knowingly submitting ineligible loans for FHA insurance.”

“M&T Bank bypassed its responsibility to originate and underwrite mortgages in accordance with the standards required by the FHA,” said First Assistant U.S. Attorney James P. Kennedy Jr. for the Western District of New York. “This case demonstrates that when a financial institution takes such a detour, we will work to ensure that it does not bypass the consequences of that conduct.”

Related: Whistleblower Trends: Real Estate Fraud and the Next Bubble Break

During the time period covered by the settlement, M&T Bank participated as a direct endorsement lender (DEL) in the FHA insurance program. A DEL has the authority to originate, underwrite and endorse mortgages for FHA insurance. If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan. Under the DEL program, the FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance. DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance, to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices, and to self-report any deficient loans identified by their quality control program.

The settlement announced today resolves allegations that M&T Bank failed to comply with certain FHA origination, underwriting and quality control requirements.  As part of the settlement, M&T Bank admitted to the following facts: Between Jan. 1, 2006, and Dec. 31, 2011, it certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements and did not adhere to FHA’s quality control requirements.  Prior to 2010, M&T Bank failed to review all Early Payment Default (EPD) loans, which are loans that become 60 days past due within the first six months of repayment. Between 2006 and 2011, M&T also failed to review an adequate sample of FHA loans, as required by HUD.    

Additionally, M&T created a quality control process that allowed it to produce preliminary major error rates that were significantly lower (sometimes below one percent) than what the rate would have been if M&T had calculated its preliminary major error rate by dividing the number of loans with preliminary major errors by the number of loans reviewed to determine what percent of loans contained a preliminary major error.

M&T Bank also failed to adhere to HUD’s self-reporting requirements.  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. As a result of M&T’s conduct and omissions, HUD insured hundreds of loans approved by M&T that were not eligible for FHA mortgage insurance under the Direct Endorsement program and that HUD would not otherwise have insured. HUD subsequently incurred substantial losses when it paid insurance claims on those loans.

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“This recovery on behalf of the Federal Housing Administration should serve as a reminder of the potential consequences of not following HUD program rules and the value of private citizen assistance, including whistleblowers, in pursuing lenders that violate the rules,” said Inspector General David A. Montoya of the Department of Housing and Urban Development.

“It is critically important that FHA-approved lenders comply with HUD’s underwriting standards and originate mortgages that borrowers can sustain,” said HUD General Counsel Helen Kanovsky. “We are pleased M&T Bank worked with the Department of Justice and HUD to arrive at an agreeable settlement that protects FHA’s insurance fund.”

The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by a former employee of M&T Bank, Keisha Kelschenbach.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. The share to be awarded in this case has not yet been determined. read more »

SEC Gives Whistleblower $3.5M Payout On Second Look

The U.S. Securities and Exchange Commission in a rare move Friday overturned an order denying a whistleblower claim to award more than $3.5 million for information provided in the midst of an investigation, raising the award because of “hardships” experienced by the tipster.

The commission overturned a decision issued in January by the Claims Review Staff, pointing to new evidence provided by the SEC Enforcement Division showing that although the tipster didn’t start the investigation, the tip “significantly contributed” to the success of the enforcement action in question. In another unusual move, the agency said it had considered “unique hardships” experienced by the whistleblower in determining the award, its largest in nearly two years.

Andrew Ceresney, the director of the SEC’s division of enforcement, applauded the award in a statement Friday.

“Whistleblowers can receive an award not only when their tip initiates an investigation, but also when they provide new information or documentation that advances an existing inquiry,” Ceresney said. “This particular whistleblower’s tip substantially strengthened our ongoing case and increased our leverage during settlement negotiations with the company.”

The order, as is typical, didn’t identify the enforcement action the whistleblower contributed to or the information they provided. By law, the SEC has to protect whistleblower confidentiality, and as a practice, it withholds information that could be used to directly or indirectly blow a tipster's cover. read more »

Whistleblower claims Wells Fargo misled borrowers, government

A Damascus man claims he was terminated by Wells Fargo & Co. in 2014 after he discovered the bank was repeatedly collecting on mortgage loans for which it did not have the proper documentation.

When Duke Tran, 54, complained about the practice, he claims he was told to lie to customers. When he resisted, the bank fired him in November 2014, Tran said.

In a whistleblower lawsuit unsealed a week ago, Tran claims Wells also defrauded the U.S. government. He argues the bank illegally collected hundreds of millions of dollars in federal foreclosure-prevention funding for loans the bank knew lacked proper documentation.

Wells Fargo denies any wrongdoing.

Tran's lawsuit recalls the foreclosure wars that accompanied the 2008-11 housing crash and recession. Some of the banks whose aggressive subprime lending helped cause the crash then let loose a wave of home foreclosures without recent precedent. It did so despite widespread protests that the lenders lacked the proper documents  to prove they had standing to legally repossess the homes.

Last month, Wells Fargo paid a record $1.2 billion to settle a U.S. Department of Justice lawsuit claiming the bank had for years engaged in reckless underwriting and lending and then relied on government mortgage insurance to pay for the loans when they went bad.

Tran's wrenching transition from happy 10-year veteran at Wells Fargo to self-proclaimed whistleblower began in December 2013 when he fielded a call from a couple terrified they were going to get foreclosed out of their home. They were overdue on their second mortgage and Wells Fargo was demanding a balloon payment.

Tran, who worked at the bank's Beaverton call center, checked and checked again. He claims he could find no trace of the couple's loan in the bank's computer system and he told the couple so. read more »