Fifth Third Bancorp will pay more than $84.9 million to resolve U.S. civil fraud charges that it failed to disclose material defects in more than 1,400 mortgage loans in a timely manner after certifying that they qualified for federal insurance.
The settlement was announced on Tuesday by U.S. Attorney Preet Bharara in Manhattan.
Fifth Third admitted and accepted responsibility for taking too long to tell the U.S. Department of Housing and Urban Development about the defects, which made loans ineligible for Federal Housing Administration insurance, after discovering them in post-closing reviews from 2003 to 2013.
The $84.9 million covers losses on 519 defaulted loans for which HUD paid insurance claims.
Fifth Third will also indemnify HUD for losses on more than 900 other loans that have yet to default and pay HUD $2.04 million under another indemnification agreement.
“We are pleased to have concluded this agreement with the government, covering loans dating to the financial crisis,” Fifth Third said in a statement. “We are excited about the future of our mortgage business.”
The bank’s share price closed down 18 cents at $18.95.
Fifth Third joined JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Deutsche Bank AG and other lenders in resolving U.S. claims, often raised by Bharara’s office, over home loan defects. Wells Fargo & Co is defending one such lawsuit by Bharara.
The Fifth Third settlement resolved claims under the federal False Claims Act and Financial Institutions Reform, Recovery, and Enforcement Act.
Bharara said Fifth Third voluntarily disclosed its defective loans in 2012 and 2014, reformed its business practices and fired the employees responsible.
“When banks discover that some of (their) loans are lemons and that their promises of quality were false, as Fifth Third Bank did, they must come forward and report it promptly, so that taxpayers don’t get stuck with the bill,” Bharara said.
U.S. District Judge Deborah Batts in Manhattan approved the settlement on Monday.
False Claims Act cases let whistleblowers pursue claims on behalf of the government and share in recoveries.
The Fifth Third lawsuit was filed in 2011. Two whistleblowers, John Ferguson and George Mann, will receive $6.37 million, court papers show.
Fifth Third ended June with $141.7 billion of assets and 1,299 branches. On Sept. 28, U.S. authorities said Fifth Third would pay $21.5 million to settle separate civil charges over discrimination in auto loans and excess fees on credit cards. (Reporting by Jonathan Stempel in New York, Editing by Cynthia Osterman and Tom Brown)