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FCA Suit Against Deutsche Bank and Its Mortgage Subsidiary

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In what may be a sign of future whistleblower-driven litigation facing the mortgage industry, the federal government brought a False Claims Act suit on May 3 against Deutsche Bank and a subsidiary it acquired in 2007, MortgageIT, Inc., alleging that they “repeatedly lied to be included in a government program to select mortgages for insurance by the government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments.”

The government’s complaint alleges false certifications made to the Department of Housing and Urban Development (HUD) in connection with MortgageIT’s mortgage origination and sponsorship practices. The FHA has paid insurance claims on more than 3,100 mortgages, totaling $386 million, for mortgages endorsed by MortgageIT.

According to the government’s complaint, MortgageIT endorsed tens of thousands of mortgages for Federal Housing Administration (FHA) insurance, totaling more than $5 billion in underlying principal obligations. The mortgages were marketable for resale to investors because they were insured by the full faith and credit of the United States.

Also according to the complaint, MortgageIT made false certifications to HUD to obtain approval of mortgages that MortgageIT underwriters improperly endorsed for FHA insurance. The mortgages were not eligible for FHA insurance. Notwithstanding this ineligibility, underwriters at MortgageIT endorsed the mortgages by falsely certifying that they had conducted the due diligence required by HUD rules. By endorsing ineligible mortgages, and falsely certifying compliance with HUD rules, MortgageIT wrongfully obtained approval of these ineligible mortgages for FHA insurance and put FHA dollars at risk.

In addition, MortgageIT and Deutsche Bank allegedly failed to implement required quality control procedures, and falsely certified that MortgageIT had the procedures in place. And on occasions when HUD discovered alleged quality control violations, MortgageIT allegedly falsely stated that the failures had been corrected.

Among other things, the government seeks treble damages and penalties for the insurance claims paid by HUD, and damages for the amounts the government expects to pay in the future.

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