Attorneys across town and in New York at DOJ have brought suit against Deutsche Bank and its subsidiary, MortgageIT, alleging reckless lending, violations of the false claims act, and various common law claims including breach of fiduciary duty, negligence, and gross negligence. Finally.
A copy of the complaint can be found here, courtesy of the WSJ law blog.
The DOJ complaint alleges that Deutsche Bank lied to HUD about the ability of its customers to repay loans in order to receive FHA (Federal Housing Authority) insurance. Specifically, the complaint alleges that, although Deutsche Bank knew its mortgages were not eligible for FHA insurance under HUD rules, its underwriters lied by falsely certifying they had conducted the required due diligence. Thus, Deutsche Bank wrongfully obtained insurance from the federal government on thousands of mortgages.
Naturally, Deutsche Bank packaged and resold those loans. The story is all too familiar. Thousands of borrowers defaulted as Deutsche Bank rightfully expected they would. But the bank didn’t care because risk was separated from underwriting. By selling off the insured loans, Deutsche Bank at once guaranteed its profits regardless of investors’ ability to repay, and placed a multi-million dollar burden on the FHA to pay out under its duties as a credible insurer. According to the Complaint, HUD has paid $386 million in FHA insurance claims and costs arising out of Deutsche Bank’s approval of risky mortgages and falsification of documents.
Lying to the government instead of actually doing the proper due diligence, handing out insured loans with no regard to the borrower’s ability to repay ; A Better symbol of the myopic corporate greed that plagued Wall Street for the past decade cannot be found. Imagine the thought process: “Will these borrowers be able to repay the loans?” “Heck, who cares, we’ll just have the government (taxpayers) insure them while we make a few hundred million in a week. “
With this conduct, DOJ was handed a softball. The conduct involved FHA directly and as they say was “ a no brainer”. Criminal yes, but no “perp” walks. No individuals who will bear responsibility. The sanction will be against a faceless corporation. The American public who foot the bill deserve more.
Assisted by Zachary Kady