Deutsche Bank, DOJ fight over FHA loan losses
Deutsche Bank (DB) and the Department of Justice continue to battle over whom is responsible for losses on government-insured mortgages originated by MortgageIT, a unit of the German banking giant. In May, the DOJ accused MortgageIT of lying to the Department of Housing and Urban Development "to obtain approval of home loans MortgageIT underwriters wrongfully endorsed" for Federal Housing Administration insurance. Deutsche Bank acquired the loan originator in 2007, months before the housing meltdown. The DOJ claims the government was saddled with millions of dollars in losses on MortgageIT loans that never should have been insured by the government. This week, the DOJ amended its civil mortgage fraud complaint against Deutsche. The complaint includes allegations that an outside auditor found serious problems with MortgageIT's FHA's mortgage loans, but those problems were "literally stuffed in a closet and left unread and unopened," according to the complaint. The amended complaint arrives after Deutsche Bank filed a motion to dismiss the case earlier in the summer. "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," Deutsche Bank said, claiming HUD knew about the loans years before it acquired MortgageIT and continued to accept the loans into the government program. "Close to 90% of the activity covered by the DOJ allegations happened prior to Deutsche Bank's acquisition of Mortgage IT," the German banking giant said in May. "When Deutsche Bank acquired Mortgage IT in 2007, it was an FHA lender that had been operating within the oversight of the Department of Housing and Urban Development for nearly a decade." "As described in the complaint, in three separate audits in 2003, 2004 and 2006, HUD purportedly found that MortgageIT was not adequately conducting the required EPD (early payment default) reviews," Deutsche wrote in its motion. "The (complaint) does not allege that HUD did anything more than scold MortgageIT for the alleged failure to conduct EPD reviews." Deutsche Bank also said "even in three separate periods between when HUD identified the issue in its audits and when it allegedly was told the issue was fixed, HUD continued to insure loans endorsed by MortgageIT." Write to: Kerri Panchuk.