Mortgage crisis

The United States government filed a lawsuit against Germany's biggest lender Deutsche Bank on Tuesday, claiming more than $1 billion (670 million euros) in damages and accusing the financial giant of mortgage fraud.

The case relates to Deutsche Bank's MortgageIT unit which it purchased in 2007. The government said in its civil complaint that MortgageIT "recklessly" and "falsely" approved tens of thousands of mortgages for insurance with the Federal Housing Authority (FHA), meaning the loans were covered by the federal government.

Prosecutors said Deutsche Bank stood to profit from the eventual resale of these mortgages should borrowers be unable to repay the loans, and that the bank employed a "blatant disregard" for whether borrowers actually had the means to make repayments.

Deutsche Bank and subsidiary MortgageIT "repeatedly lied to be included in a government program to select mortgages for insurance by the government," said the Justice Department complaint.

"While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected in the future," it said.

'Powerful incentives' to lie

FHA insurance claims and related costs had so far totaled $386 million, the government said, adding that it expected the payouts to be ongoing. The lawsuit seeks triple damages and other penalties.

"Deutsche Bank and MortgageIT had powerful financial incentives to invest resources into generating as many FHA-insured mortgages as quickly as possible for resale to investors," the complaint added.

"By contrast, Deutsche Bank and MortgageIT had few financial incentives to invest resources into ensuring the quality of its FHA-insured mortgages."

Bank denies wrongdoing

A spokeswoman for Deutsche Bank confirmed the lender had received the complaint and was conducting a review. "We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously," she said.

The lawsuit marks a new push by the US government to pin the blame on the mortgage industry for perceived excesses that contributed to a four-year housing slump which has led to thousands of foreclosures.

Deutsche Bank was also implicated in an April report by the US Senate Permanent Subcommittee on Investigations criticizing lenders for contributing to the financial crisis. The paper's authors alleged the German bank deceived clients into investing in securities it believed were likely to implode.

Author: Darren Mara (AFP, Reuters, AP)
Editor: Rob Turner