Mortgage IT Division Sold Faulty Loans To FHA

Grant McCool, Reuters via Huffington Post

A Deutsche Bank AG mortgage unit has agreed to pay $202.3 million to settle one of the biggest U.S. government civil fraud lawsuits over reckless mortgage lending practices.

The bank’s MortgageIT unit admitted it had lied to the U.S. Department of Housing and Urban Development (HUD) that loans it issued were eligible for federal mortgage insurance when they were not, the U.S. attorney’s office in Manhattan said on Thursday. It said MortgageIT “repeatedly submitted certifications that were knowingly or recklessly false.”

Deutsche Bank and MortgageIT did not conform to federal regulations and as a consequence, HUD incurred losses when about a third of the loans defaulted, Manhattan U.S. Attorney Preet Bharara said. He said the damages to be paid by the bank would help compensate HUD.

The case is one of several civil fraud lawsuits that are part of a crackdown by the Department of Justice against lenders it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.

Bharara said that between 1999 and 2009, Deutsche Bank and MortgageIT treated the federal insurance, obtained through the Federal Housing Administration (FHA), “as free government money to backstop lending practices that did not follow the rules.”

The rules include a quality control program under which the lender is required to review loans that default within the first six payments and report them. By the end of 2007, MortgageIT was not reviewing those loans. The FHA paid more than $92 million in FHA insurance claims in the 10-year period for loans that defaulted within the first six payments.

The $202.3 million resolves damages and penalties under the False Claims Act, which since 1863 has protected the federal government from fraudulent bills. The settlement was approved Thursday by a federal judge, according to documents filed in U.S. District Court in New York.

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