Deutsche Bank, MortgageIT Suit Should Go Forward, U.S. Government Argues

Nov. 2 (Bloomberg) -- Deutsche Bank AG (DBK), Germany’s biggest bank, and its MortgageIT unit should be required to defend the $1 billion suit by the government claiming they lied as part of a “massive fraud” to qualify thousands of risky mortgages for a federal insurance program, the U.S. said.

The U.S. claims Frankfurt-based Deutsche Bank and MortgageIT falsely certified that they properly assessed the default risk of borrowers, qualifying loans for insurance by the Housing and Urban Development Department’s Federal Housing Administration, according to a complaint filed May 3 in Manhattan federal court.

“This misconduct -- which MortgageIT began as early as 1999 and which Deutsche Bank continued and exacerbated after acquiring MortgageIT in 2007 -- resulted in a wave of defaults and more than $368 million in FHA insurance losses on loans that never should have been originated in the first place,” the U.S. said in a brief today opposing the defendants’ request to dismiss the suit.

The U.S. sued under the False Claims Act, which permits it to seek triple damages and penalties of 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).

To contact the reporter on this story: Bob Van Voris in U.S. District Court in Manhattan at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.