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US prosecutors: Deutsche Bank was aware of mortgage fraud

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US prosecutors: Deutsche Bank was aware of mortgage fraud
Photo: DPA
07:52 CEST+02:00
Germany's Deutsche Bank was aware of fraud being committed by a US subsidiary that issued thousands of bad mortgages before the 2008 financial crisis, US prosecutors have alleged.

The US Department of Justice detailed the allegations in an amended lawsuit filed this week with a New York court, hitting back at Deutsche Bank's claim that it was not responsible for the actions of MortgageIT, a home finance business it took over in January 2007.

"Following the merger, MortgageIT continued its wrongful conduct. And, it did so with the knowledge and/or participation of Deutsche Bank," the department said.

The department is seeking more than $1 billion in damages from the German banking giant over alleged fraud committed by Mortgage IT, which was a major mortgage lender before the 2007-08 collapse of the US housing market.

In its lawsuit originally filed in May, the department accused MortgageIT of failing to follow proper quality-control procedures when it insured home loans with the US Federal Housing Administration (FHA).

Of the 39,000 home loans worth more than $5 billion that MortgageIT insured with the FHA prior to 2009, nearly 13,000 are now in default, leaving US taxpayers to pay the bill, the department says.

In Monday's amended filing, the department said about 30 percent of the FHA-insured loans that MortgageIT originated before Deutsche Bank took over ended up in default.

After January 2007, the Justice Department said, the problem only "got worse", with the percentage that went bad rising to 46 percent.

The rampant issuing of mortgages to unqualified borrowers unable to repay them fuelled a bubble in US home prices that popped in 2007-08, triggering the global financial crisis.

AFP/mdm

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