The government will announce later today that it plans to move ahead with a lawsuit against Deutsche Bank and its subsidiary MortgageIT over alleged mortgage fraud and “years of reckless lending practices,” according to a statement by the Justice Department.
The lawsuit alleges that Deutsche Bank’s MortgageIT unit repeatedly lied to the U.S. Housing and Urban Development (HUD) about the quality of its mortgages, according to a Wall Street Journal report. The lawsuit alleges that of the more than 39,000 mortgages that MortgageIT endorsed for HUD’s mortgage-insurance program, FHA, about one third of them defaulted.
The WSJ report said that the government claims that when an outside auditor showed MortgageIT its findings about serious problems in its mortgages, the auditor’s findings were "stuffed unopened and unread in a closet in MortgageIT's Manhattan headquarters."
The lawsuit also claims that while Deutsche and MortgageIT were making money off the resale of the government-issued mortgages, "thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims."
In response, Deutsche Bank called the claims of fraud "unfounded," and vowed to "defend ourselves with all legal resources."