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U.S. sues Deutsche Bank for fraud in subprime mortgages

Washington accused of minimizing the risk to obtain government guarantees

Attorney for the Southern District of New York, Preet Bharara, yesterday at a news conference. - S. STAPLETON (Reuters)

POZZI MICHAEL - New York - 04/05/2011

United States begins to demand accountability from the big banks for abuses committed in the mortgage market during the boom. The first focus is the German group Deutsche Bank and its subsidiary MortgageIT, which was accused of fraud for misleading systematically to determine the loans would be covered by government guarantees. The amount of compensation claimed may exceed 1,000 billion dollars (about 675 million euros), three times the $ 386 million that are estimated payments by Administration under the alleged fraud.

claim may amount to more than 1,000 million

The lawsuit, filed by civil proceedings by the prosecutor Preet Bharara, is released when they are about to be completed four years the bursting of the housing bubble in the U.S., the epicenter of the biggest financial crisis since the Great Depression . The Justice Department representative said that the entity "flagrant disregard" if they could pay mortgage loans.

According to the lawsuit, the German subsidiary of a decade violated the program rules of Agency Housing, which helps secure mortgage funds. And speaking of that illegally backed loans totaling 5,000 million dollars between 1999 and 2009, corresponding to the principal of 39,000 mortgages. To achieve the government guarantees, the Deutsche Bank and its subsidiary MortgageIT falsely certified that borrowers were not at risk of default, the suit says.

That is, the entity literally misled regulators about the quality of the mortgages. But also the demand shows that Deutsche Bank took advantage after the resale of these junk mortgage assets , even though many of the owners were delinquent or were about to lose their homes over unpaid loans they received.

Deutsche Bank was one of the leading packagers of mortgage-related debt. In this sense, the action of the Attorney New York explains that the agency was devoting significant resources "to build as quickly as possible" the government-insured mortgages for resale to investors, instead of focusing on preserving the quality of loans .

As feared Bharara emphasizes, the same as leading the battle against insider trading on Wall Street or confidential, it happened while "thousands of households have faced eviction and the Government had to pay hundreds of millions in claims "through the public guarantee program. A cost estimated at $ 386 million.

Deutsche Bank responded to these allegations flatly rejecting that has lied to the U.S. Government for these loans were included in the federal program. But if the past serves as a reference to anticipate what will happen with this case, the financial firms tend to resolve these disputes with an extrajudicial agreement to exempt it from acknowledging his guilt.

The announcement of the lawsuit caused an immediate fall in the value of Deutsche Bank in Frankfurt market, which left about 2% to close the trading day, which led in turn drag effect the index of leading banks in Europe. As noted by traders on the floor, is bad news that scares investors.

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