Deutsche Bank knew mortgage co it bought lied: Justice Dept

New York Mon Aug 22, 2011 11:49pm EDT

A Deutsche Bank logo is pictured in front of the Deutsche Bank headquarters in Frankfurt February 24, 2011. REUTERS/Ralph Orlowski

A Deutsche Bank logo is pictured in front of the Deutsche Bank headquarters in Frankfurt February 24, 2011.

Credit: Reuters/Ralph Orlowski

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New York (Reuters) - Deutsche Bank AG knew in 2006 that a mortgage company it was preparing to buy lied to the U.S. government about its mortgages, yet went ahead with the purchase and should be held financially responsible, the Justice Department said on Monday.

According to the department's amended $1 billion complaint filed Monday evening with the U.S. District Court in Manhattan, Deutsche Bank was "on notice of and expressly assumed responsibility" for wrongdoing at MortgageIT Inc, which it bought in 2007.

The government first sued Deutsche Bank and MortgageIT in May saying they misled the Federal Housing Administration into believing that mortgages issued by MortgageIT qualified for federal insurance, when the quality was so poor that nearly one in three defaulted.

Deutsche Bank had previously sought to dismiss the complaint, in part by arguing that the government failed to show it assumed MortgageIT's obligations.

But the government said the bank, in conducting due diligence prior to the merger, knew MortgageIT violated rules of the Department of Housing and Urban Development, which the FHA is part of, and made false representations to the agency.

It said Deutsche Bank had access to several letters showing that MortgageIT did not review all early payment defaults, and had access to managers who knew that misconduct was taking place.

"Notwithstanding its knowledge of MortgageIT's wrongful conduct, Deutsche Bank completed the merger with MortgageIT, pursuant to which it expressly agreed to acquire all of the pre-merger assets and liabilities of MortgageIT," the complaint said.

The Justice Department said it first learned about the defendants' false claims to HUD in July 2010. Its lawsuit seeks triple damages under the federal False Claims Act.

"Wrongful conduct alleged herein not only continued after Deutsche Bank acquired MortgageIT in January 2007, but it got worse," the department said.

Deutsche Bank in a statement said: "We do not believe the deficiencies in the government's original complaint have been cured by this amended complaint and we will continue to defend ourselves vigorously."

The amended complaint adds new examples of alleged false certifications, and updates earlier data provided on the cost of that misconduct.

It said that of the more than 39,000 loans that MortgageIT approved for FHA insurance between 1999 and 2009, more than 12,900 were in default by June, up from 12,500 in February.

It also said the government has paid more than $368 million of FHA insurance claims on roughly 3,200 of the mortgages, compared with an earlier, higher payout estimate of $386 million on 3,100 mortgages.

The amended complaint also adds two Deutsche Bank units as defendants, DB Structured Products Inc and Deutsche Bank Securities Inc. No individuals have been charged.

The case is U.S. v. Deutsche Bank AG et al, U.S. District Court, Southern District of New York, No. 11-02976.

(Additional reporting by Sakthi Prasad in Bangalore; Editing by Gary Hill and Lincoln Feast)

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Comments (1)
linushuber wrote:
SCARE 20.12.2012
(Stop Corruption and Repression Effective 20.12.2012)
Banks were given a very important privilege to create more in the form of extending credit. This function requires diligence and careful consideration in regard to individual credit risks as well as to overall credit levels in the system. The financial crisis revealed that the banks were operating at too high a leverage and with too much risk. They were used to be saved by the Central Banks and certain that in times of difficulties the Central Banks were there to save them. They were like trained dogs and their master Greenspan or Bernanke would always be there to rescue them when unforeseen difficulties arose.
That may be true but that does not absolve them from their obligation to monitor overall debt levels in the system as well as being diligent in evaluating the debtors ability to not only service a debt but to be able to repay it over time. The banks clearly failed in this function that is the core function of banking but focused mainly on their compensation packages. The way these bankers enriched themselves in the process of driving the financial system into a wall was appalling and the average income earner was never able to comprehend their schemes but preferred to simply ignore them. Of course, the bankers explained their outrages income levels with free market principles of supply and demand, where the best simply could be hired with those kinds of benefits only. In hindsight those superior managers seem to have missed their mark considerably. The most interesting aspect of all of this is the fact that, after we have been more than 3 years in this financial crisis, the bankers continue to loot the system as if nothing ever happened.
True to form the Central Banks “saved” the financial system by saving those great financial institutions without whom the system would have collapsed, as was argued. Hardly were we out of the danger of collapse, the banks immediately went back to their old ways and were certain that this was a problem that would occur just once in a lifetime and now all was clear again. The real problem, however, had not been addressed but had simply been muddied.
In actuality, the losses produced of extending unsustainable levels of credit by the banks have been transferred to the public. Different ways were chosen to achieve this task in the form of free money for the banks, injection of government funds into some institutions, increase of basic money supply and so on.
The threat of system collapse would have been labelled blackmail if it would have occurred in another setting. However the bankers were able to influence the media, the legislators and regulators in their favour with all the financial resources available to them. Nobody was made to take any responsibility and no one was taken to account.
This represents a serious violation of the spirit of the Rule of Law that is the basis of western society. It seems that now the new rule is Might is Right. This changes many parameters in the compass of the social system within the western world. No one can be sure on what level and when one will be subjected to the financial abuse of those elites. Presently, the people in charge are trying to enhance financial repression of which one form is to keep interest rates below the level of inflation which affects mainly those that lived within their means over the past many years; another clear violation of the spirit of the Rule of Law as it transfers losses from bad investments to the innocent and decent part of the population. In addition, the increased level of government debt puts in doubt all those benefits promised by governments the world over.
It is interesting how the banks were able to confuse the public that they are unable to grasp the actual situation. But considering their great financial resources, it seems not that much of a miracle to influence the media and the legislator and having politicians do their bidding. The question is what the heck can WE, THE PEOPLE do about it.
Usually, we could address such things on a political level as we are a democracy, right? But it seems that the system has been corrupted by all the money sloshing around and it is extremely difficult to find any electable person that will act against those powerful interests. In addition, it will take many years until sufficient numbers of persons with the new thinking and with integrity not to be corrupted by those lobbying efforts will be elected to office that will implement the changes needed. So, what should we do? Start a revolution?
Well, the blackmail used by the banks may be the only way to address the injustices that have occurred over the past few years. They showed us how to leverage one’s limited resources to achieve one’s goal. Therefore the following proposal to start the movement “SCARE 20.12.2012” should be seen in this context. The idea is that if by that time (20.12.2012) some serious injustices have been removed from the system, people start to withdraw their money from all financial institutions driving them into default. And it might work, because those who hesitate to support this threat may be left with no money as the banks will have to close down before all has been paid out.
Now, what demands are made if that scenario is to be avoided.
1. Bankers and past Bankers (all those working in the financial industry that earned in excess of $500k plus annually for more than 2 years during the past 15 years and this without any downside risk i.e. risk of financial losses, except the possibility of losing their job) have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes regulating agencies and politics) before 20.12.2012.
2. Present and past regulators have to be made personally accountable for their past activities and be removed from any such position that might directly or indirectly have influence on the money creation and lending aspects of the economy (this includes financial institutions and politics) before 20.12.2012.
3. Politicians that accept any financial support from institutions that are involved in the money creation and lending aspects of the economy will have to face a jail term of no less than 2 years without the possibility of parole.
When these 3 points are implemented before 20.12.2012, we the public will not destroy the financial system but support the way to find back to the RULE OF LAW and away from the idea of MIGHT IS RIGHT.

Aug 23, 2011 12:38pm EDT  --  Report as abuse
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