MortgageIT Settlement Cost Deutsche Bank $200 Million

May 16th, 2012 by Trefis Team
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Deutsche Bank (NYSE:DB) has reached an agreement with the U.S. Department of Justice (DOJ) to settle a mortgage-related civil lawsuit against it for a sum of $202.3 million. [1] In the lawsuit, the DOJ alleged that MortgageIt knowingly lied to the U.S. government regarding the quality of its mortgages. The largest German bank accepted the charges. Earlier this year, Citigroup (NYSE:C) settled a similar lawsuit over its CitiMortgage unit. These lawsuits are but the tip of the mortgage-related lawsuits iceberg, with a long list of lawsuits – a notably large number being against Bank of America (NYSE:BAC) – still waiting to be resolved in various courts across the country.

We maintain a $49 price estimate for Deutsche Bank’s stock, which is about 23% above the current market price. The negative market sentiment towards bank stocks are largely responsible for the significantly depressed share price.

See our full analysis for Deutsche Bank

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MortgageIT Has Been on DOJ’s Cross-hairs For Some Time Now

The DOJ filed the billion-dollar lawsuit against Deutsche Bank and MortgageIT last May, seeking damages and civil penalties under the False Claims Act for “repeated false certifications made to the U.S. Department of Housing and Urban Development (HUD) in connection with the residential mortgage origination and sponsorship practices of MortgageIT”. [2] MortgageIT endorsed ineligible mortgages and falsely certified their compliance with HUD rules between 1999 and 2009, and received $92 million in FHA insurance claims over them.

The DOJ later amended the lawsuit in August last year to include the fact that Deutsche Bank made a conscious decision to acquire MorgageIT in 2006 despite having complete knowledge of the fraud – turning the heat on Deutsche Bank.

The settlement was reached early last week, and has been approved by a federal judge. With a maximum possible liability of $1 billion, the settlement is a major burden off Deutsche Bank’s back and will reflect in the bank’s Q2 2012 performance figures as a reduction in margins for the bank’s private & business banking division.

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Notes:
  1. Deutsche Bank to pay $202 million U.S. mortgage settlement, Reuters, May 10 2012 [↩]
  2. United States Sues Deutsche Bank and Subsidiary MortgageIT for Years of Reckless Lending Practices, DOJ Website, May 3 2011 [↩]