Deutsche Bank and subsidiary MortgageIT have agreed to pay more than $202 million to settle a federal Qui Tam, also known as the Federal False Claims Act, case asserting mortgage fraud by the giant bank. The lawsuit accused the largest bank in Germany with lying to federal housing agencies about mortgage applications in order to qualify those mortgages for federal insurance programs defrauding the government of more than a billion dollars. The U.S. filed the lawsuit in May of 2011 under the Federal False Claims Act, seeking three times the actual loss to the government plus penalties for the alleged “massive fraud.” The case is U.S. v Deutsche Bank AG, 11-cv-2976, U.S. District Court, Southern District of New York (Manhattan)
The United States accused Deutsche Bank of certifying mortgages without properly assessing the default risk of borrowers. By creating this false paperwork, loans became eligible for Federal Housing Administration (FHA) insurance. The bank falsely represented that the mortgaged premises were “highly marketable” for resale. MortgageIT endorsed nearly 40,000 mortgage loans in the decade before the settlement. The FHA paid out insurance claims on more than 3,200 of these falsely certified mortgages for a total loss to taxpayers of more than 368 million dollars.
According to a statement made by the U.S. Attorney for the Southern District of New York, where the case was filed, “MortgageIT and Deutsche Bank treated FHA insurance as free government money to backstop lending practices that did not follow the rules.” In essence, Deutsche Bank made very risky loans expecting that if the borrower defaulted the bank would be repaid the money with United States government funds.
Deutsche Bank admitted to some of the allegations, including responsibility for MortgageIT’s failure to provide adequate quality control, violating FHA and Housing and Urban Development (HUD) regulations, and endorsing loans that were ineligible to receive federal mortgage insurance, among other violations. While Deutsche bank denied other violations, by settling the case it will avoid the potential embarrassment of the government proving those assertions at trial.
Although this case was brought directly by the U.S. Attorney’s Office, most Qui Tam actions are initiated by whistleblowers willing to come forward for the common good. These whistleblowers are eligible for a percentage of all settlement funds or awards at trial. These cases are complex and call for substantial expertise in federal qui tam litigation.