Reuters: Regulatory News: UPDATE 1-Deutsche Bank to pay $202 mln US mortgage settlement

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UPDATE 1-Deutsche Bank to pay $202 mln US mortgage settlement May 10th 2012, 18:12 Thu May 10, 2012 2:12pm EDT * One of biggest US lawsuits over risky home loans * HUD incurred losses when some of the loans defaulted * Damages to be paid by bank will help compensate HUD * Deutsche Bank welcomes settlement -spokeswoman By Grant McCool NEW YORK, May 10 (Reuters) - A Deutsche Bank AG mortgage unit has agreed to pay $202.3 million to settle a civil fraud case brought by the U.S. Justice Department, one of the biggest government lawsuits over risky mortgage practices. The bank's MortgageIT unit admitted it certified to the U.S. Department of Housing and Urban Development (HUD) that loans it issued were eligible for federal mortgage insurance when they were not, the U.S. attorney's office in Manhattan said on Thursday. It said Deutsche Bank and MortgageIT did not conform to federal regulations and as a consequence, HUD incurred losses when some of the loans defaulted. Manhattan U.S. Attorney Preet Bharara said the damages to be paid by the bank would help compensate HUD. Bharara said that Deutsche Bank and MortgageIT treated the federal insurance, obtained through the Federal Housing Administration (FHA), "as free government money to backstop lending practices that did not follow the rules" between 1999 and 2009. The $202.3 million resolves damages and penalties under the False Claims Act. The settlement was approved Thursday by a federal judge in New York, the government said. The Justice Department sued for $1 billion in May last year, describing in its lawsuit a decade of misconduct regarding MortgageIT's participation in the FHA insurance program. Deutsche Bank said it welcomed the settlement. A spokeswoman, Renee Calabro, said the bank had "already fully reserved" for the accord and that it "marks a significant step in resolving our mortgage-related exposures." According to the settlement, Deutsche Bank admitted and accepted responsibility for MortgageIT, which became a wholly owned indirect subsidiary of DB Structured Products Inc and Deutsche Bank AG in January 2007. In February, Citigroup Inc agreed to pay $158.3 million to settle U.S. civil claims over similar allegations it defrauded the government into insuring thousands of risky home loans made by its CitiMortgage unit. The civil fraud cases are part of a crackdown by the Department of Justice against lenders it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold. Whistleblowers can receive up to 25 percent of settlements reached with the government in such cases. The case is USA v Deutsche Bank AG et al in the U.S. District Court for the Southern District of New York, No. 11-02976 Link this Share this Digg this Email Reprints

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