- Title: USA: American government files mortgage fraud complaint against Deutsche Bank
- Date: 4th May 2011
- Summary: NEW YORK CITY, NEW YORK, UNITED STATES (MAY 3, 2011) (REUTERS) DEUTSCHE BANK BUILDING VARIOUS OF DEUTSCHE BANK BUILDING
- Embargoed: 19th May 2011 13:00
- Location: Usa, Usa
- Country: USA
- Topics: Finance,Domestic Politics
- Reuters ID: LVACQYI0WOIR38S80P1VN4B1EJ0
- Story Text: The U.S. government sued Deutsche Bank AG for more than $1 billion (USD), accusing the German bank of fraud for repeatedly lying to obtain federal guarantees on mortgages it issued.
According to the lawsuit, Deutsche Bank and its MortgageIT Inc unit misled the Federal Housing Administration, the world's largest mortgage insurer, into believing their mortgages qualified for federal insurance, knowing they could make "substantial profits" when the loans were later sold.
"These companies repeatedly and brazenly breached the public trust. This lawsuit sends them and other lenders the message that they cannot get away with lies and recklessness. They cannot causally assign the prospect of being caught to the cost of doing business," said Manhattan U.S. Attorney Preet Bharara said at a news conference.
The complaint, filed in U.S. District Court in Manhattan, marks the latest government push to hold the mortgage industry responsible for excesses that contributed to a 4-year-old housing slump and millions of foreclosures.
"But while the homes the defendants issued loans for may have been built on solid ground," said Bharara.
Deutsche Bank and MortgageIT "simply ignored every type of red flag and breached every duty of due diligence before endorsing mortgages for federal insurance. In fact they often seemed to treat red flags as if they were green lights," added Bharara.
In its complaint, the government said that from 1999 to 2009, when it closed, MortgageIT approved more than 39,000 loans worth more than $5 billion (USD) for insurance by the FHA, part of the U.S. Department of Housing and Urban Development.
Knowing they would profit from the eventual resale of the loans, the defendants chose mortgages that violated program rules "in blatant disregard" of whether borrowers actually had the ability to make payments, the lawsuit contends.
The government said more than 12,500, or nearly one-third, of the mortgages have gone into default.
Banks have come under harsh criticism for practices such as foreclosing on homes without first reviewing the necessary documents or having them in hand, and hastily packaging bad mortgages into securities sold to unsuspecting investors.
Deutsche Bank said in a statement that almost 90 percent of the loans covered by the complaint were made before it bought MortgageIT in 2007, and that the unit had been operating under federal oversight for nearly a decade.
The claims "are unreasonable and unfair, and we intend to defend against the action vigorously," the bank said.
Deutsche Bank shares closed down 2.1 percent at 43.25 euros in Frankfurt, after falling as much as 3.7 percent.
The complaint seeks triple damages on the $386 million (USD) of claims, as well as punitive damages and fines.
The lawsuit is among the first targeting a major bank under the federal False Claims Act over mortgages, but as Bharara inferred on Tuesday, the lawsuit might not be the last.
"Every lender in America needs to be on notice that more than ever before, we cannot tolerated fraud and misconduct in the mortgage market. In order to prevent another crisis tomorrow, we all need to be even more vigilant today."
The case is U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976.
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