Newspaper article International Herald Tribune

Deutsche Bank Settles U.S. Mortgage Lawsuit ; $202 Million Payment Resolves Claim That a Unit Misused Loan Insurance

Newspaper article International Herald Tribune

Deutsche Bank Settles U.S. Mortgage Lawsuit ; $202 Million Payment Resolves Claim That a Unit Misused Loan Insurance

Article excerpt

The settlement resolves a suit that accused the bank's mortgage unit MortgageIT of misleading the Department of Housing and Urban Development about the quality of mortgages that later defaulted.

Deutsche Bank has agreed to pay the U.S. government more than $200 million to settle accusations that it knowingly misled the Department of Housing and Urban Development about the quality of mortgages that later defaulted.

The defaults ultimately cost U.S. taxpayers about $368 million. The settlement announced Thursday resolved a lawsuit filed against Deutsche Bank in May 2011 by the U.S. attorney for the Southern District of New York, Preet S. Bharara, along with the housing department and the U.S. Department of Justice.

The home loans were issued by MortgageIT, a mortgage provider that Deutsche Bank bought in 2007. Under the terms of the settlement, Deutsche Bank admitted that it should have known that MortgageIT's practices did not conform to the housing department's rules after it made the acquisition. The $202 million settlement is a significant victory for the U.S. Financial Fraud Enforcement Task Force, which was established to investigate the abuses that culminated in the financial crisis of 2008 and early 2009.

MortgageIT insured the loans under a Federal Housing Administration program called direct endorsement lender, despite the fact that they did not qualify under the rules of the program and were not eligible for the insurance, according to the suit. When the loans soured, the government was obligated to cover the losses.

As a direct endorsement lender, MortgageIT had the authority to provide the housing administration insurance on the loans it had made, without having to seek prior approval from the agency. Because of that extra authority, government officials said, the mortgage provider is supposed to do everything it can to ensure that the mortgages are being given to creditworthy borrowers who can pay back the money.

"MortgageIT and Deutsche Bank treated F. …

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