A federal prosecutor is going after Deutsche Bank AG for bad home loans that wound up costing the federal government hundreds of millions of dollars in insurance payments.

 

U.S. Attorney Preet Bharara has filed a civil lawsuit in New York federal court that seeks $1 billion from the German bank, which is accused of “recklessly” lying about the quality of loans made by its subsidiary, MortgageIT Inc., and insured by the Federal Housing Administration (FHA).

 

Bharara says Deutsche’s lending practices resulted in the Department of Housing and Urban Development (HUD) paying out $386 million so far in insurance claims to those who held MortgageIT loans. HUD still faces another $888 million in claims on loans that have defaulted.

 

According to Bharara, “MortgageIT and Deutsche Bank ignored every type of red flag and breached every duty of due diligence before underwriting thousands of federally insured mortgages….prudence was trumped by profit, and good faith took a back seat to good fees. This is exactly the kind of misconduct that our Civil Frauds Unit was created to combat.”

 

The U.S. Attorney indicated that Deutsche may not be the only bank that the Justice Department will sue to recover insurance payments. Bharara told The Wall Street Journal that it wouldn’t be a “fantastical stretch to think we are looking at other financial institutions as well.”

 

Deutsche Bank is also deep into a lawsuit filed by the Federal Home Loan Bank of San Francisco over allegations that its officers lied about the strength of many subprime mortgage-backed securities they created and sold.

-Noel Brinkerhoff

 

United States Sues Deutsche Bank and Subsidiary MortgageIT for Years of Reckless Lending Practices (U.S. Department of Justice)

U.S. Says Deutsche Bank Lied (By Chad Bray, Liz Rappaport and Nick Timiraos, Wall Street Journal)

Feds Take Billion-Dollar Whack at Deutsche Bank (by Colin Barr, Fortune)

JPMorgan and Deutsche Bank Accused of Fraud in Both U.S. and Italy (by Noel Brinkerhoff, AllGov)