According to a recent U.S. Department of Justice (DOJ) press release, DOJ has filed a mortgage fraud civil lawsuit against Deutsche Bank AG and its subsidiary MortgageIT, Inc. for violations of the False Claims Act and common law for MortgageIT’s residential mortgage origination and sponsorship practices.
Alleged in the Complaint:
• between 1999 and 2009, MortgageIT was a federally-approved direct endorsement lender and endorsed over 39,000 mortgages for Federal Housing Administration (FHA) insurance, totaling more than $5 billion in mortgage obligations;
• these mortgages were insured under FHA insurance, marketable for resale to investors, and MortgageIT and Deutsche Bank profited from their resale;
• MortgageIT made false certifications to the Department of Housing and Urban Development (HUD) for approval of mortgages that were wrongfully endorsed for FHA insurance by MortgageIT;
• the mortgages were not eligible for FHA insurance but MortgageIT falsely certified that MortgageIT conducted the HUD-required due diligence; and
• MortgageIT and Deutsche Bank falsely certified that they had required quality control procedures.
The Complaint seeks treble damages and penalties for the insurance claims that HUD has already paid and compensatory and punitive damages for breach of fiduciary duty, gross negligence, negligence, and indemnification for future claims HUD expects to pay.
According to the DOJ press release, FHA has paid insurance claims totaling $386 million on at least 3,100 mortgages MortgageIT endorsed. Under FHA’s direct endorsement lender program, participating lenders can endorse mortgages qualified for FHA insurance. The lenders are fiduciaries of HUD for endorsing and underwriting mortgages for FHA insurance. FHA insurance protects lenders against mortgage defaults.
