Deutsche Bank AG and its MortgageIT unit were charged with fraud in order to obtain federal mortgage insurance - violating the U.S. False Claims Act.  The bank and its subsidiary allegedly presenting fraudulent data in order to obtain federal mortgage insurance from the FHA (Federal Housing Administration) within the U.S. Housing and Urban Development Department. 

“Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profited from the resale of these government-issued mortgages, thousands of American homeowners have faced default and eviction.”

U.S. prosecutors in New York are suing DB for more than $1 billion.  The complaint seeks treble damages and penalties under the False Claims Act, which could amount to more than $1 billion.  The case is U.S. v. Deutsche Bank AG, 11-cv-2976, U.S. District Court, Southern District of New York (Manhattan).

        Federal Complaint re: Insurance Claims.  In its complaint, federal prosecutors used terms like "repeatedly lied" and “reckless lending practices.”  “While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future.”  

    As of February, HUD had paid more than $386 million in FHA insurance claims and related costs arising from Deutsche Bank-approved mortgages, according to the complaint.  Under the False Claims Act, the U.S. can seek triple damages and penalties, meaning it could demand more than $1 billion.

In response, Deutsche Bank shares fell nearly 3.7% in Frankfurt trading.   The story continues.   [Bloomberg, 5/3/11]