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Another day, another DOJ settlement under a False Claims Action brought against a major Bank originating FHA loans. This time, it’s M&T Bank Corp to the tune of $64 million. Not a happy tune.
Here we go again. DOJ alleged that M&T did not originate their FHA loans in compliance will all FHA rules and requirements. Rather than fight these allegations and incur additional costs, M&T agreed to the settlement. The government is once again strong-arming a large lender. Or, have they?
This is exactly why large banks no longer want to participate in the FHA lending program. Way too risky when you’re such a large target for such actions. Odds are if you were to go in and carefully analyze any large lenders FHA portfolio, you’d find some discrepancies. The larger the lender, the more chance of problems.
Lenders who knowingly and willfully violate the rules should be punished. This includes hefty fines and suspension or elimination from the program. But, honest mistakes, or a misinterpretation of the rules without malice, or the demonstration of some improper pattern or practice, should not carry such penalties.
The problem is that no lender has stood up and fought the DOJ on the basis for these actions. Maybe, those fined really did knowingly and willfully violate the rules. Who knows?
The important thing is to make sure you are originating and insuring your FHA loans, as well as all other loans for that matter, in strict compliance with all related rules, regulations, and laws. I know I sound like a broken record, but you cannot assume everything is being done by the book. You need to make sure.
Train staff to know and understand the rules. Audit your loans regularly throughout the lending process to ensure compliance. Pay close attention to your audit results and any consumer complaints. These can be the warning signs of deeper problems.
Anyone working for you handling FHA loans is your partner by proxy. If they become aware of inconsistencies they may bring them to FHA and DOJ as a whistleblower, and earn a fat commission to boot. Nice incentive!
Luckily for M&T, this settlement will not have a material impact on their financial condition, according to C. Michael Zabel, spokesman for the bank. Can you say the same if hit with such a penalty?
The game has changed. Play different. Play by the rules.
