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US sues Deutsche Bank for mortgage fraud

The Local · 3 May 2011, 18:26

Published: 03 May 2011 17:22 GMT+02:00
Updated: 03 May 2011 18:26 GMT+02:00

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Deutsche Bank and its subsidiary MortgageIT "repeatedly lied to be included in a government program to select mortgages for insurance by the government," the Justice Department complaint said.

"While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected in the future," it said.

The suit, filed Tuesday in New York federal district court, said that MortgageIT, acquired by Deutsche Bank in January 2007, insured 39,000 home loans worth more than $5 billion with the Federal Housing Administration (FHA) in the decade to 2009.

The mortgages were "recklessly" approved by the company in "blatant disregard" of whether the borrowers would be able to make payments on them.

Both the bank and MortgageIT "made substantial profits through (the) resale of these FHA-insured mortgages," many of which later ended up in default, the complaint said. Despite the mortgages' low quality, MortgageIT falsely claimed it had performed due diligence and asserted them as eligible for FHA insurance.

It also failed to monitor defaults as required, the suit alleged.

"MortgageIT took the only staff member dedicated to auditing FHA-insured mortgages and reassigned him to production instead," it said.

The company also "literally stuffed" into a closet unopened, unread outside auditor reports on the problem, it said.

Deutsche Bank's and MortgageIT's mortgage operations were in "egregious violations" of FHA requirements.

The result was that, not long after being sold on to investors by Deutsche Bank and its subsidiary, thousands of the loans went into default, costing the insurer while the bank profited.

The government said it had paid out $386 million as of February this year for claims on 3,100 home loans, 1,100 of which defaulted within one year.

It expected to pay "hundreds of millions of dollars more" in the future on another 7,500 more loans currently in default but insurance claims have yet to be filed or paid.

Story continues below…

Germany's biggest bank rejected the charges and pledged to mount a vigorous defence.

"The suit is unfounded and we intend to defend ourselves vigorously against this action," a Deutsche Bank spokesman told news agency AFP, declining to comment further.

In late trading on the Frankfurt stock exchange, shares in Deutsche Bank were down 2.21 percent at €43.22.


The Local (news@thelocal.de)

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Your comments about this article

19:28 May 3, 2011 by vonkoenigsberg
I think that this is typical. The United States is blaming Germany again for their own problems. Why aren't they sueing Goldman-Sachs, or any other number of companies who faruded the people with their Ponzi schemes? No, instead those criminals get bailout while the U.S. blames a foreign power. For once, put the blame on the ones who are actually repsonsible for this catastrophe - the U.S. government and executives of farudulent corporations. Capitalism does not mean bailouts for criminals.
10:15 May 4, 2011 by catjones
@vonkoenigsberg....take a valium and read from more than one source. The U.S. is suing a bank, not a government.

Also left out of the above article:

One case already wending its way through the Justice Department docket concerns alleged misrepresentations of business activities by Goldman Sachs; Carl Levin, the Michigan Democratic senator chairing the Permanent Subcommittee on Investigation, has recommended that federal prosecutors pursue perjury and other charges against Goldman CEO Lloyd Blankfein and other company executives.
15:00 May 4, 2011 by tallady
The banks did not care about the borrowers ability to repay as they sold those mortgages in bundles out the back door. It was all greed and an avenue to easy profit until the bottom feel out.

DB will have it's work cut out for it as the Federal Justice or Injustice system depending where you stand has a 98% conviction rate.They in the end will pay and fairness or justice is an oxymoron in that system.
15:11 May 4, 2011 by Katzerina
Ha! Why doesn't the Holder Justice system spend a bit more time looking into the abuses by Fannie and Freddie Mac? The ugly little truth remains, Fannie and Freddie set the rules for these absurd mortgages, and designed this PONZI scheme.

Sure it was a lofty goal, to make mortgages readily available to people who normally wouldn't be able to and shouldn't have been able to buy a house. Welcome to 'NO DOCUMENTATION" necessary hell. Everyone including Goldman Sachs was busily repackaging these loans and selling them off.

But the quasi-government agencies of Fannie and Freddie built these mortgage rules, and coerced banks into following them, by threatening to withhold federal backing if they didn't also offer these high risk loans.

Too many politicians had their own financial stakes in this debacle... which is why both the congress and Senate beginning in 2005 chose to turn a blind eye, or as Congressman Frank later did... Lie about Fannie and freddies solvency.
08:29 May 5, 2011 by Universalismus

Capitalism does not mean bailouts for criminals.

---Agreed with your comment.


One case already wending its way through the Justice Department docket concerns alleged misrepresentations of business activities by Goldman Sachs; Carl Levin, the Michigan Democratic senator chairing the Permanent Subcommittee on Investigation, has recommended that federal prosecutors pursue perjury and other charges against Goldman CEO Lloyd Blankfein and other company executives.

--Feeding us with adjectives that do not imply any act of change?

Verbs of action in your sentence were ALLEGED and RECOMENDED.

alleged: adj 1: declared but not proved.

recommended: adj : mentioned as worthy of acceptance, suggested.

So, anyone here think... I mean you are so sure this action will force prosecutors to engage, pursue to do something against Goldman CEO Lloyd Blankfein and other company executives?

As it is said in German using the verb "Werden" which the English language has none:

"" Sie müssen angeklagt werden "" "" Sie werden angeklagt"" You know what that means right? It is an act to be done. Its the foundation of the German language of turning havoc and getting things DONE.

So, in the entire sentence on Goldman Sachs, shows just another scare tactic lie using adjectives instead of verbs of engaging action.

Of course, to keep the people in the U.S. thinking the govt is doing something to get back the bailout money.

Oh but, Deutsche bank becomes sued? And this before the U.S. Congress has even acted by suing... by actually officially prosecuting??

The U.S. was born out of Europe, not the other way around.
20:34 May 10, 2011 by Stgtt/DFW
I applaud the fact that action is being taken to make a bank (any bank) take RESPONSIBILITY for their actions...

Too bad not ALL banks/mortgage institutions are held to the same standard.
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