The Real Deal Miami

U.S. sues Deutsche Bank for mortgage fraud

Bank's reckless lending practices have already cost hundreds of millions of dollars in FHA insurance claims, government alleges
May 03, 2011 04:05PM

The United States government has sued Deutsche Bank AG and one of its mortgage subsidiaries for civil mortgage fraud, seeking hundreds of millions of dollars in damages, several U.S. authorities announced today.

The complaint, which is below in full, centers on Deutsche Bank’s MortgageIT, which it acquired in January 2007. According to the complaint, MortgageIT issued more than $5 billion in Federal Housing Administration-backed loans between 1999 and 2009, many of which were not eligible for FHA insurance and should never have been endorsed. It alleges that MortgageIT, which repeatedly lied in order to obtain approval as an FHA lender, turned a blind eye to the wrongful endorsements because they were making substantial profits off of resales on those FHA-insured loans.

The government said those loans have already cost upwards of $386 million in FHA insurance claims — a sum that is expected to rise as more and more MortgageIT loans default in the coming years.

In a statement, Deutsche Bank played down its role in the allegedly questionable activities of MortgageIT. “Close to 90 percent of the activity covered by the US Department of Justice allegations happened prior to Deutsche Bank’s acquisition of MortgageIT,” a bank spokesperson said. “When Deutsche Bank acquired MortgageIT in 2007, it was a Federal Housing Authority lender that had been operating within the oversight of the Department of Housing and Urban Development for nearly a decade. We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously.”

The plaintiffs, however, did not mince words in statements about the allegations. “MortgageIT and Deutsche Bank ignored every type of red flag and breached every duty of due diligence before underwriting thousands of federally insured mortgages,” said Manhattan U.S. Attorney Preet Bharara. “While the homes the defendants issued loans for may have been built on solid ground, the defendants’ lending practices were built on quicksand. Ultimately, prudence was trumped by profit, and good faith took a back seat to good fees.” TRD