The United States has filed a civil lawsuit against Deutsche Bank AG, accusing the German bank of defrauding the government by repeatedly lying to obtain federal insurance guarantees on mortgage debt. The lawsuit filed against Deutsche Bank and its MortgageIT Inc unit is believed to be among the first targeting mortgage lenders under the federal False Claims Act. The suit is the latest push by the federal government to hold the mortgage industry responsible for excesses that contributed to a four-year-old U.S. housing slump and hundreds of thousands of foreclosures. It’s unclear at this juncture whether the government will target other banks with more lawsuits. The government is seeking more than $1 billion from Deutsche Bank.
The suit, which was filed in U.S. District Court in Manhattan, says MortgageIT from 1999 to 2009 endorsed more than 39,000 mortgages totaling more than $5 billion for Federal Housing Administration insurance. This meant they were backed by the federal government. Knowing they would profit from the eventual resale of the loans, it’s alleged that the Defendants were guilty of recklessly choosing mortgages that violated program rules “in blatant disregard” of whether borrowers actually had the ability to make payments. The government said it has paid out more than $386 million of FHA insurance claims and related costs, and expects to pay out hundreds of millions of dollars more.
The Complaint seeks triple damages on the $386 million of claims, as well as punitive damages, fines and other remedies. Deutsche Bank bought MortgageIT for $430 million in 2007. The bank was also a target of an earlier report by the U.S. Senate’s Permanent Subcommittee on Investigations, criticizing lenders for contributing to the financial crisis. That report detailed how investigators believed Deutsche Bank deceived clients into buying securities it believed were likely to implode. Deutsche Bank lost an estimated $4.5 billion tied to the mortgage market collapse, but could have lost more had it not sold such securities, according to that report.
Source: Insurance Journal
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