WASHINGTON – M&T Bank has agreed to pay $64 million to settle U.S. government allegations that it originated defective Federal Housing Administration insured loans over a five-year period.

"M&T Bank bypassed its responsibility to originate and underwrite mortgages in accordance with the standards required by the FHA," First Assistant U.S. Attorney James Kennedy for the Western District of New York, said in announcing the settlement late Friday.

The Department of Justice has reached similar False Claims Act settlements against 15 other FHA lenders over the past few years. In these cases the Justice Department and the Department of Housing and Urban Development Office of Inspector General usually contend lenders did not follow the FHA's underwriting and quality control requirements.

In reviewing closed loans, lenders are expected to self-report any underwriting errors or deficiencies, according to a Justice Department press release. The Justice Department found that M&T Bank, of Buffalo, N.Y., originated hundreds of defective FHA loans between 2006 and 2011 and self-reported only seven defective loans.

The Justice Department also faulted the $125 billion-asset M&T Bank for not adhering to the FHA's methodology for statistical sampling, saying it did not review enough loans.

"Specifically, HUD requires a direct endorsement lender to review either 10% of the FHA loans it originates, or a "statistical random sampling that provides a 95% confidence level with 2% precision. M&T chose to perform the latter, but did not adhere to HUD's 2% precision requirement," according to Justice Department documents.

A former M&T employee, Keisha Kelschenbach, alerted the Justice Department to the M&T's quality control practices. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. The Justice Department noted that Kelschenbach's share of the settlement has not been determined yet.

"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 HUD Inspector General David Montoya.

M&T Bank could not be reached for comment, but it told other news outlets that it agreed to settle the matter without admitting liability in order to avoid the expense of potential litigation.

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