Deutsche Bank AG is looking at options to fulfill its $4.1 billion requirement to provide consumer relief to borrowers as part of a larger legal settlement
According to an article in Bloomberg by Matt Scully, the bank is struggling to find enough soured U.S. mortgage debt to satisfy the obligation.
The German bank, as the article explained, has already been planning to finance fund managers that would in turn buy underwater mortgages and ease their terms, but that may prove too expensive to cover all its needs.
Instead, the bank has started to look at other options.
From the article:
Now it’s also looking at indirectly funding new loans to subprime borrowers, according to a person with knowledge of the situation.
The bank could do that by lending to companies that offer government-backed mortgages to borrowers with weaker credit, the person said. The loans would include Federal Housing Administration mortgages, which allow borrowers to make a down payment equal to as little as 3.5% of the price of their house. These types of loans, which leave taxpayers with most of the default risk, have become one of the main ways for subprime borrowers to get mortgages since the housing crisis.
Late last year, Deutsche Bank announced that it reached a $7.2 billion settlement with the Department of Justice in connection with the bank’s issuance and underwriting of residential mortgage-backed securities between 2005 and 2007.
“This $7.2 billion resolution – the largest of its kind – recognizes the immense breadth of Deutsche Bank’s unlawful scheme by demanding a painful penalty from the bank, along with billions of dollars of relief to the communities and homeowners that continue to struggle because of Wall Street’s greed,” said Principal Deputy Associate Attorney General Bill Baer at the time.
Deutsche Bank AG isn’t the only company looking at alternative options to fulfill settlement requirements.
An article in The Wall Street Journal recently explained that Goldman Sachs has been snatching up portfolios of non-performing loans from Fannie Mae in order to make money even as it looks to fulfill terms of a government settlement that calls for it to help struggling homeowners.