Settlement Entered in Civil Lawsuit Concerning HUD Violations

Allison Tussey —  May 11, 2012 — Leave a comment

Deutsche Bank AG, DB Structured Products, Inc., Deutsche Bank Securities, Inc. (collectively “Deutsche Bank”) and MortgageIt, Inc. have entered into an agreement settling a lawsuit filed by the United States, which alleged HUD misrepresentations.

The Government’s lawsuit, filed May 3, 2011, sought damages and civil penalties under the False Claims Act for repeated false certifications to HUD in connection with the residential mortgage origination practices of MortgageIt, a wholly-owned subsidiary of Deutsche Bank since 2007.

The suit alleges approximately a decade of misconduct in connection with MortgageIt‘s participation in the Federal Housing Administration’s (“FHA’s”) Direct Endorsement Lender Program (“DEL program”), which delegates authority to participating private lenders to endorse mortgages for FHA insurance. Among other things, the suit accused the defendants of having submitted false certifications to HUD, including false certifications that MortgageIt was originating mortgages in compliance with HUD rules when in fact it was not.

In the settlement, MortgageIt and Deutsche Bankadmitted, acknowledged, and accepted responsibility for certain conduct alleged in the Complaint, including that, contrary to the representations in MortgageIt‘s annual certifications, MortgageIt did not conform to all applicable HUD-FHA regulations. MortgageIt also admitted that it submitted certifications to HUD stating that certain loans were eligible for FHA mortgage insurance when in fact they were not; that FHA insured certain loans endorsed by MortgageIt that were not eligible for FHA mortgage insurance; and that HUD consequently incurred losses when some of those MortgageIt loans defaulted.

The defendants also agreed to pay $202.3 million to the United States to resolve the Government’s claims for damages and penalties under the False Claims Act. The settlement was approved by United States District Judge Lewis Kaplan.

Preet Bharara, the United States Attorney for the Southern District of New York, Stuart F. Delery, the Acting Assistant Attorney General for the Civil Division of the U.S. Department of Justice, Helen Kanovsky, General Counsel of the U.S. Department of Housing and Urban Development (“HUD”), and David A. Montoya, Inspector General of HUD, announced the settlement.

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Allison Tussey

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