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Deutsche Bank reaches $95 million RMBS settlement with Maryland

Settlement over crisis-era mortgage bonds is related to $7.2 billion DOJ agreement

The state of Maryland announced last week that it reached a $95 million settlement with Deutsche Bank over claims that Deutsche Bank misled investors about its securitization and sale of residential mortgage-backed securities and collateralized debt obligations during the run-up to the financial crisis.

The settlement, which was announced last week by the office of Maryland Attorney General Brian Frosh, includes a requirement that Deutsche Bank provide $80 million in relief to consumers in Maryland.

The settlement also includes $15 million in restitution for Maryland state and local government investments, Frosh’s office said.

According to Frosh’s office, the $95 million settlement is the largest reached by a state for Deutsche Bank’s crisis-era RMBS practices.

The settlement covers alleged violations of Maryland state law and is separate but related to the $7.2 billion settlement between Deutsche Bank and the Department of Justice that became official earlier this year.

The DOJ settlement covered allegations that Deutsche Bank “knowingly made false and misleading representations to investors about the characteristics of the mortgage loans it securitized in RMBS worth billions of dollars issued by the bank” between 2006 and 2007.

The Maryland settlement lays out a series of allegations about Deutsche Bank’s crisis-era conduct, including Deutsche Bank acknowledging that it misled investors by not providing complete and accurate information about the RMBS deals and CDOs that it offered.

“By misrepresenting key characteristics of the loans that it securitized, Deutsche Bank concealed from investors and rating agencies the true risk of losses of its RMBS,” Frosh’s office said in a statement. “In doing so, Deutsche Bank deprived investors of their right to make an informed decision about whether they should invest in those RMBS.”

Included in the DOJ settlement was a requirement that Deutsche Bank provide $4.1 billion in relief to underwater homeowners, distressed borrowers and affected communities.

And according to Frosh’s office, the $80 million in consumer relief that Deutsche Bank must provide as part of its settlement with Maryland is included in the $4.1 billion in relief that’s part of the DOJ settlement.

Per Frosh’s office, the $80 million in consumer relief will be provided in the forms of mortgage forgiveness and forbearance, low to moderate income lending, neighborhood reinvestment and stabilization, and affordable housing financing.

When contacted by HousingWire, a representative from Deutsche Bank said the company is not commenting on the Maryland settlement.

“Deutsche Bank has acknowledged that it deceived investors about the quality of the residential mortgages backing their complex securities,” Frosh said in a statement.

“Its conduct, and that of other investment banks, fueled the financial crisis and aided unfair and predatory lending practices,” Frosh continued. “This settlement recoups losses that Maryland suffered through investments in Deutsche Bank securities and also ensures that Maryland consumers will receive relief from the Department of Justice settlement entered into during the Obama administration.”

(h/t Law360)

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