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Deutsche Bank, MassMutual settle RMBS lawsuit

Federal judge okays motion to dismiss, terms not disclosed

A Deutsche Bank (DB) unit and Massachusetts Mutual Life Insurance Co. have reached a settlement over residential mortgage-backed securities, with a federal judge signing off on the undisclosed terms Thursday.

U.S. District Judge Mark Mastroianni green-lit a motion filed by both parties on Wednesday to dismiss the ongoing lawsuit.

No details about the settlement were disclosed in the motion, with the motions only stating that the two were settling.

“We are pleased to have resolved this matter,” Oksana Poltavets, assistant vice president for press and media relations at Deutsche Bank, Germany's largest bank.

The 2011 lawsuit arose over residential mortgage-backed securitizations that went south during the housing crash.

In its initial complaint, MassMutual alleged that Deutsche Bank’s representations were what convinced the insurance giant to buy $125 million worth of securities. The bank, the argued in their filing, was the “exclusive source of information” regarding the loans that backed the securities.

The company later discovered that Deutsche Bank allegedly disregarded their own underwriting standards, and had purchased loans issued to borrowers regardless of the ability to repay.

Deutsche Bank argued that both the allegations were untrue, and that MassMutual should have known that there was something wrong with the securitizations.

“The discovery record establishes that MassMutual’s awareness of supposedly ‘poor’ underwriting and potential appraisal inflation prompted MassMutual to begin a selloff of RMBS in late 2006,” the motion said.

They also argued that the statute of limitations for the lawsuit had expired, as the deals were all four years prior to the current lawsuit’s 2011 filing.

“MUSA’s four-year limitations period was triggered once MassMutual was on inquiry notice of its claims — i.e., the point in time that MassMutual had enough of a basis to suspect that it might have claims to cause it to investigate further,” the bank said in its filing. “If anyone knew what was going on in the world of RMBS, it would be MassMutual.”

Last August — in fact one year ago Thursday — Deutsche Bank and BayernLB agreed to settle an $810 million RMBS lawsuit.

In that lawsuit, BayernLB asserted that Deutsche Bank sold the securities to external clients while secretly criticizing them within the bank and ultimately profiting from their failure.

"Deutsche Bank originated, purchased, financed and securitized exceptionally high-risk loans into these RMBS, all while internally disparaging the poor quality of these loans and the RMBS they backed as 'pigs' and 'crap,'" according to the 2012 court filing from BayernLB.

In December 2013, the Federal Housing Finance Agency inked a $1.9 billion settlement with Deutsche Bank, settling claims related to alleged violations of federal and state securities laws.

The deal resolves another private-label mortgage-backed securities lawsuit filed against a major bank by the FHFA on behalf of Fannie Mae and Freddie Mac.
It ties back to claims that Deutsche Bank sold the two government-sponsored enterprises toxic loans while misrepresenting the overall quality of the pools.

The settlement effectively ended the FHFA v. Deutsche Bank lawsuit and resolved issues related to MBS purchased by the GSEs between 2005 and 2007.

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