Feds File $1 Billion Suit Against Deutsche Bank Over Mortgage Fraud, Other Banks Now In Crosshairs
May 3 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest bank, was sued for more than $1 billion by the U.S. government, which claims it “repeatedly lied” so that thousands of risky mortgages qualified for a government insurance program.
NEW YORK/FRANKFURT (Reuters) – The government sued Deutsche Bank AG for more than $1 billion, 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.
In fact, the government said, the loan quality was so poor that nearly one in three mortgages defaulted, a percentage elevated by Deutsche Bank's "dysfunctional" quality control.
The complaint, filed in U.S. District Court in Manhattan on Tuesday, 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.
Deutsche Bank and MortgageIT "indulged in the worst of the industry's reckless lending practices," Manhattan U.S. Attorney Preet Bharara said at a news conference. "They often seemed to treat red flags as though they were green lights."
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U.S. May Pursue More Lenders After Suing Deutsche on Faulty Mortgages
The U.S. Department of Justice may pursue claims against other lenders after suing Deutsche Bank AG for more than $1 billion, alleging the firm lied while arranging federal insurance on faulty mortgages.
The Housing and Urban Development Department is examining loans insured through the Federal Housing Administration and may refer additional cases to the Justice Department, HUD’s general counsel, Helen Kanovsky, said yesterday in an interview.
“We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” Kanovsky said. U.S. Attorney Preet Bharara said it wouldn’t be a “fantastical stretch” for prosecutors to scrutinize other lenders.
May 4, 2011 at 12:27 PM
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