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Daily Real Estate News  |  May 4, 2011  |   Fed Accuses Major Bank of Mortgage Fraud
The federal government is suing Deutsche Bank, accusing the bank of committing fraud by repeatedly lying to the government and for reckless lending practices in underwriting thousands of federally insured mortgages that ultimately cost taxpayers hundreds of millions of dollars.

U.S. Attorney Preet Bharara said the bank "repeatedly and brazenly" took part in shoddy lending practices for mortgages "that were really ticking time bombs." Bharara says sometimes the bank even failed to verify that a mortgage applicant even was employed. "In fact, they often seemed to treat red flags as if they were green lights. ... While the homes the defendants issued loans for may have been built on solid ground, the defendants' lending practices were built on quicksand."

The lawsuit, which seeks $1 billion in damages, alleges that Deutsche Bank lied about the quality of its lending practices in order to get access to the government’s mortgage insurance program by the Federal Housing Administration. The Fed accuses the bank of carrying out fraud through its subsidiary, MortgageIT. Between 1999 and 2009, the lawsuit alleges that MortgageIT received backing from the FHA on more than 39,000 loans totaling more than $5 billion.

"Borrower after borrower defaulted--often within just months of closing--because those loans were doomed to fail," Bharara said at a news conference.

As of February, the Department of Housing and Urban Development has paid more than $386 million in FHA insurance claims and other costs for loans approved by the bank that ultimately went bad.

"We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously," Deutsche Bank spokeswoman Renee Calabro says.
Calabro says nearly all of the activity outlined in the lawsuit occurred before Deutsche Bank even acquired MortgageIT in 2007.

Meanwhile, government officials are warning other banks to be on alert too. Federal regulators and attorneys general nationwide are investigating lender practices in foreclosure cases. The number of foreclosure fraud class-action lawsuits have already increased against major banks across the country.

Source: “U.S. Sues Deutsche Bank, Alleging Mortgage Fraud,” The Washington Post (May 4, 2011) and “Feds Sue Deutsche Bank, Alleging Mortgage Fraud,” Associated Press (May 3, 2011)

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