Preet Bharara, the U.S. attorney for the Southern District of New York, Stuart Delery, the acting 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 David Montoya, inspector general of HUD, announced on May 10 that the United States settled a civil fraud lawsuit against Deutsche Bank AG, DB Structured Products Inc., Deutsche Securities Inc. and MortgageIT Inc.
The government filed suit against MortgageIT on May 3, 2011, seeking damages and civil penalties under the False Claims Act for alleged false certifications to HUD in connection with the residential mortgage origination practices of MortgageIT, which is a wholly-owned subsidiary of Deutsche Bank AG. The lawsuit alleged a decade of misconduct in connection with MortgageIT’s participation in the Federal Housing Administration’s (FHA) Direct Endorsement Lender Program. The government accused the defendants of submitting false certifications to HUD that MortgageIT was originating mortgages in compliance with HUD rules, when it was not.
According to HUD, MortgageIT and Deutsche Bank admitted that MortgageIT did not conform to all applicable HUD-FHA regulations. The government said MortgageIT also admitted to submitting certifications to HUD stating loans were eligible for FHA mortgage insurance when they were not and that HUD incurred losses when some of MortgageIT’s fraudulent mortgages defaulted. The defendants agreed to pay $202.3 million to the United States.
“MortgageIT and Deutsche Bank treated FHA insurance as free government money to backstop lending practices that did not follow the rules,” Bharara said. “Participation in the Direct Endorsement Lender program comes with requirements that are not mere technicalities to be circumvented through subterfuge as these defendants did repeatedly over the course of a decade. Their failure to meet these requirements caused substantial losses to the government — losses that could have and should have been avoided. In addition to their admissions of responsibility, Deutsche Bank and MortgageIT have agreed to pay damages in an amount that will significantly compensate HUD for the losses it incurred as a result of the defendants’ actions.”
“This is an important settlement for the United States, both in terms of obtaining substantial reimbursement for the FHA insurance fund for wrongfully incurred claims, and in obtaining the defendants’ acceptance of their role in the losses they caused to the taxpayers,” Delery said.
“This case demonstrates that HUD has the ability to identify fraud patterns and work with our partners at the Department of Justice and U.S. Attorney’s Offices to pursue appropriate remedies,” Kanovsky said. “HUD would like to commend the work of the United States Attorney for the Southern District of New York in achieving this settlement, which is a substantial recovery for the FHA mortgage insurance fund. We look forward to continuing our joint efforts with the Department of Justice and the SDNY to combat mortgage fraud. The mortgage industry should take notice that we will not sit silently by if we detect abuses in our programs.”
“We expect every Direct Endorsement Lender to adhere to the highest level of integrity and accountability,” Montoya added. “When the combined efforts and attention of the Department of Justice, HUD, and HUD Office of Inspector General are focused upon those who fail to exercise such integrity in connection with HUD programs, the end result will be both unpleasant and costly to the offending party.”