United States Attorney
Southern District of New York

PREET BHARARA, the United States Attorney for the
Southern District of New York, TONY WEST, the Assistant Attorney
General for the Civil Division of the U.S. Department of Justice,
HELEN KANOVSKY, General Counsel of the U.S. Department of Housing
and Urban Development (“HUD”), and MICHAEL P. STEPHENS, Acting
Inspector General of HUD, announced today that the United States
has filed a civil mortgage fraud lawsuit against DEUTSCHE BANK AG
(“DEUTSCHE BANK”) and its wholly owned subsidiary, MORTGAGEIT,
INC. (“MORTGAGEIT”). The Government’s Complaint seeks damages
and civil penalties under the False Claims Act for repeated false
certifications made to HUD in connection with the residential
mortgage origination and sponsorship practices of MORTGAGEIT. To
date, FHA has paid insurance claims on more than 3,100 mortgages,
totaling $386 million, for mortgages endorsed by MORTGAGEIT.
Manhattan U.S. Attorney PREET BHARARA said: “As
alleged, MortgageIT and Deutsche Bank ignored every type of red
flag and breached every duty of due diligence before underwriting
thousands of federally insured mortgages. While the homes the
defendants issued loans for may have been built on solid ground,
the defendants’ lending practices were built on quicksand.
Ultimately, prudence was trumped by profit, and good faith took a
back seat to good fees. This is exactly the kind of misconduct
that our Civil Frauds Unit was created to combat.”
Assistant Attorney General for the Civil Division of
the Department of Justice TONY WEST said: “Many working families
count on FHA’s mortgage insurance program to help them achieve
the dream of home ownership. According to our complaint, these
lenders put millions of dollars of taxpayer funds at risk and
violated the integrity of this important program by making false
certifications to HUD.”
HUD General Counsel HELEN KANOVSKY said: “We don’t
tolerate fraud in FHA’s mortgage insurance business. Each and
every lender has a responsibility to properly underwrite
mortgages not only to protect FHA’s insurance fund but those
families who depend on the FHA mortgage insurance program to
provide them safe and sustainable mortgage financing.”
HUD Acting Inspector General MICHAEL P. STEPHENS said:
“The Department of Housing and Urban Development Office of
Inspector General is committed to aggressively pursuing, in
cooperation with our law enforcement partners, those who would
seek to damage our nation’s important housing programs. In
today’s trying economic times, it is all the more important to
protect those programs, such as the FHA, which are so critical to
our fragile recovery and to our country’s citizenry.”
According to the complaint filed today in Manhattan
Federal court:
Background on FHA Mortgage Insurance
FHA mortgage insurance makes home ownership possible
for millions of American families by protecting lenders against
defaults on mortgages, thereby encouraging lenders to make loans
to borrowers who might not be able to meet conventional
underwriting requirements. To assist as many qualified
homeowners as possible, FHA operates a direct endorsement lender
program, which grants participating lenders the authority to
endorse mortgages that are qualified for FHA insurance. Direct
endorsement lenders act as fiduciaries of HUD in underwriting
mortgages and endorsing them for FHA insurance. The integrity of
the program requires these direct endorsement lenders to
carefully review mortgages to ensure compliance with HUD rules
and underwriting standards. These lenders are entrusted with
safeguarding the public from taking on risks that exceed
statutory and regulatory limits.
To qualify as a direct endorsement lender, a lender
must implement a quality control plan. Every direct endorsement
lender must submit a certification to HUD for each mortgage the
lender endorses, stating that the lender has conducted due
diligence in accordance with all HUD rules.
DEUTSCHE BANK and MORTGAGEIT’S False Representations
Between 1999 and 2009, MORTGAGEIT was an approved
direct endorsement lender, and endorsed more than 39,000
mortgages for FHA insurance, totaling more than $5 billion in
underlying principal obligations. These mortgages were highly
marketable for resale to investors because they were insured by
the full faith and credit of the United States. MORTGAGEIT and
DEUTSCHE BANK, which acquired MORTGAGEIT in January 2007, made
substantial profits through the resale of these endorsed FHAinsured
According to the Complaint, MORTGAGEIT repeatedly made
false certifications to HUD to obtain approval of mortgages that
MORTGAGEIT underwriters wrongfully endorsed for FHA insurance.
These mortgages were not eligible for FHA insurance under HUD
rules. Notwithstanding the mortgages’ ineligibility,
underwriters at MORTGAGEIT endorsed the mortgages by falsely
certifying that they had conducted the due diligence required by
HUD rules when, in fact, they had not. By endorsing ineligible
mortgages and falsely certifying compliance with HUD rules,
MORTGAGEIT wrongfully obtained approval of these ineligible
mortgages for FHA insurance, thereby putting millions of FHA
dollars at risk.
In addition, according to the Complaint, MORTGAGEIT and
DEUTSCHE BANK never implemented the quality control procedures
required of direct endorsement lenders, but falsely certified to
HUD that MORTGAGEIT had the required procedures in place. On
various occasions when HUD discovered evidence that MORTGAGEIT
was violating the quality control requirement, MORTGAGEIT falsely
stated that the failures had been corrected.
* * *
The Complaint seeks treble damages and penalties under
the False Claims Act, 31 U.S.C. §§ 3729 et seq., for the
insurance claims already paid by HUD for mortgages wrongfully
endorsed by MORTGAGEIT through the false statements of DEUTSCHE
BANK and MORTGAGEIT. In addition, the United States seeks
compensatory and punitive damages under the common law theories
of breach of fiduciary duty, gross negligence, negligence, and
indemnification, for the insurance claims that HUD expects to pay
in the future for mortgages wrongfully endorsed by MORTGAGEIT as
a result of DEUTSCHE BANK’s and MORTGAGEIT’s false statements.
The case is being handled by the Office’s Civil Frauds
Unit. Mr. BHARARA established the Civil Frauds Unit in March
2010 to bring renewed focus and additional resources to combating
financial fraud, including mortgage fraud.

The Civil Frauds Unit works in coordination with
President BARACK OBAMA’s Financial Fraud Enforcement Task Force,
on which Mr. BHARARA serves as a Co-Chair of the Securities and
Commodities Fraud Working Group. President OBAMA established the
interagency Financial Fraud Enforcement Task Force to wage an
aggressive, coordinated, and proactive effort to investigate and
prosecute financial crimes. The task force includes
representatives from a broad range of federal agencies,
regulatory authorities, inspectors general, and state and local
law enforcement who, working together, bring to bear a powerful
array of criminal and civil enforcement resources. The task
force is working to improve efforts across the federal executive
branch, and with state and local partners, to investigate and
prosecute significant financial crimes, ensure just and effective
punishment for those who perpetrate financial crimes, combat
discrimination in the lending and financial markets, and recover
proceeds for victims of financial crimes.

Mr. BHARARA thanked HUD for their extraordinary work in
this case. He also expressed his appreciation for the support of
the Commercial Litigation Branch of the U.S. Department of
Justice’s Civil Division in Washington, D.C.
Assistant U.S. Attorney BRIAN M. FELDMAN is in charge
of the case.
11-119 ###

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