Turning the Tide Toward Borrowers

Featured Products and Services by The Garfield Firm

——–>SEE TABLE OF CONTENTS: WHOSE LIEN IS IT ANYWAY TOC

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment:

Nocera and several other responsible journalists have finally reached the point of taking a larger perspective than the narrow myths perpetuated by Wall Street. Wall Street would have us believe that they took bad risks and “made mistakes” causing the financial collapse. His point is the Justice Department has taken after “the smallest of smallest” and he believes that those prosecutions are in lieu of the prosecutions that ought to occur against those who are responsible for setting up a criminal enterprise with the appearance of a conventional business structure.

The problem is easy to describe and difficult to solve.  It is simply true that prosecutions of “small fry” are easier because they don’t have the resources or knowledge necessary to properly defend themselves.  It is equally true that the successful prosecution can be used for public relations purposes to show that a regulating agency or law enforcement is doing its job.

On the other hand prosecution of Jamie Dimon or Lloyd Blankfein would provoke a vigorous defense conducted by dozens of lawyers whose purpose would be to merely poke holes in the prosecutions case rather than proving their clients innocence.  In order to prosecute such people and those close to them, it would be necessary for the regulating agencies and law enforcement to acquire specialized knowledge so that they would know what to investigate and arrive at conclusions as to which violations to prosecute based upon their likelihood of success. 

The solution is obvious.  Since there is no likelihood that most regulatory agencies and most law enforcement agencies would ever be able to mount such a challenge to the Titans of Wall Street, and the political risk of losing such a case would be devastating, they simply must maintain the status quo, which is to say that they should continue the policy of going after “small fry”.  On the other hand if they really want to represent the citizens of their country or their state (or their county), they could appoint a special prosecutor whose payment would be relatively minimal in terms of getting the case started and largely dependent upon the actual payment of fines, penalties, interests, and restitution.  There are at present at least a dozen law firms in the country (including our very own GarfieldFirm.com) who could perform this service under the direction of the Attorney General or county attorney or both.

The only thing that the state would need to provide is space and facilities and perhaps some minimal capital.  To put this in perspective, I made an approach to the appropriate people in government in the state of Arizona in 2008 in that proposal it was my naïvely idealistic presumption that the state would be more than happy to collect taxes, fees, fines, penalties interest etc that were due from out of state residence residing on Wall Street in the state of New York.  Based upon existing AZ law I projected a 10 billion dollar recovery.  Their finance department looked over my analysis and decided I was wrong.  They projected a recovery of 3 billion dollars which as it turns out is exactly the amount of the budget deficit of the state. 

At this point it is fair to say that the risk reward ratio of prosecuting the Titans of Wall Street has reached a point where it is irresistible if it is performed by a special prosecutor who has no ambitions for public office.  In the process, the state would recover not only the taxes, fees, fines, penalties and interest, but the homeowners would be virtually guaranteed some form of restitution based upon the wrongful foreclosures and the trading of their loans and securities whose value was derived from their loans. 

It is well understood and known that we are only halfway through a contest of enormous consequence.  Without appropriate restraints on banking and financial service companies most of the liberties and rights set forth in the founding documents of our country will become meaningless.   Until now the investment banks have been able to control the narrative.  But the facts about their misdeeds and malfeasance are starting to drown out the gigantic Wall Street machine.  I’m not saying that the tide has already turned.  But with the help of readers like you who become proactive and write letters to their attorney generals, county attorneys, and the regulatory agencies demanding such action, the tide will turn earlier rather than later. 

The Mortgage Fraud Fraud

By JOE NOCERA

I got an e-mail the other day from Richard Engle telling me that his son Charlie would be getting out of prison this month. I was happy to hear it.

Charlie’s ordeal isn’t over yet, of course. When he leaves prison on June 20, Charlie, 49, will move temporarily to a halfway house, after which he will be on probation for another five years. And unless he can get the verdict overturned, he will have to spend the rest of his life with a felony on his record.

Perhaps you remember Charlie Engle. I wrote about him not long after he entered a minimum-security facility in Beaver, W.Va., 16 months ago. He’s the poor guy who went to jail for lying on a liar loan during the housing bubble.

There were two things about Charlie’s prosecution that really bothered me. First, he’d clearly been targeted by an agent of the Internal Revenue Service who seemed offended that Charlie was an ultramarathoner without a steady day job. The I.R.S. conducted “Dumpster dives” into his garbage and put a wire on a female undercover agent hoping to find some dirt on him. Unable to unearth any wrongdoing on his tax returns, the I.R.S. discovered he had taken out several subprime mortgages that didn’t require income verification. His income on one of them was wildly inflated. They don’t call them liar loans for nothing.

Charlie has always insisted that he never filled out the loan document — his mortgage broker did it, and he was actually a victim of mortgage fraud. (The broker later pleaded guilty to another mortgage fraud.) Indeed, according to a recent court filing by Charlie’s lawyer, the government failed to turn over exculpatory evidence that could have helped Charlie prove his innocence. For whatever inexplicable reason, prosecutors really wanted to nail Charlie Engle. And they did.

Second, though, it seemed incredible to me that with all the fraud that took place during the housing bubble, the Justice Department was focusing not on the banks that had issued the fraudulent loans, but rather on those who had taken out the loans, which invariably went sour when housing prices fell.

As I would later learn, Charlie Engle was no aberration. The current meme — argued most recently by Charles Ferguson, in his new book “Predator Nation” — is that not a single top executive at any of the firms that nearly brought down the financial system has spent so much as a day in jail. And that is true enough.

But what is also true, and which is every bit as corrosive to our belief in the rule of law, is that the Justice Department has instead taken after the smallest of small fry — and then trumpeted those prosecutions as proof of how tough it is on mortgage fraud. It is a shameful way for the government to act.

“These people thought they were pursuing the American dream,” says Mark Pennington, a lawyer in Des Moines who regularly defends home buyers being prosecuted by the local United States attorney. “Right here in Des Moines,” he said, “there was a big subprime outfit, Wells Fargo Financial. No one there has been prosecuted. They are only going after people who lost their homes after the bubble burst. It’s a scandal.”

The Justice Department has had a tough run recently. Last week, Eric Schneiderman, the New York attorney general — who was recently given a role by President Obama to investigate the mortgage-backed securities issued during the bubble — complained publicly that he wasn’t getting the resources he needed from the Justice Department. And, of course, on Thursday, a federal judge declared a mistrial on five charges of campaign finance fraud and conspiracy in the trial of the former presidential candidate John Edwards.

In the Edwards case, the Justice Department spent tens of millions of dollars, and trotted out novel legal theories, to prosecute a man who was essentially trying to keep people from discovering that he had had a mistress and an out-of-wedlock child. Salacious though it was, the case has zero public import. Yet this same Justice Department isn’t willing to use similar resources — and perhaps even trot out some novel legal theories — to go after the pervasive corporate wrongdoing that gave us the financial crisis and the Great Recession. (I should note that the Justice Department claims that it “will not hesitate” to prosecute any “institution where there is evidence of a crime.”)

Think back to the last time the federal government went after corporate crooks. It was after the Internet bubble. Jeffrey Skilling and Kenneth Lay of Enron were prosecuted and found guilty. Bernard Ebbers, the former chief executive of WorldCom, went to jail. Dennis Kozlowski of Tyco was prosecuted and given a lengthy prison sentence. Now recall which Justice Department prosecuted those men.

Amazing, isn’t it? George W. Bush has turned out to be tougher on corporate crooks than Barack Obama.

BUY THE BOOK! CLICK HERE!

BUY WORKSHOP COMPANION WORKBOOK AND 2D EDITION PRACTICE MANUAL

GET TWO HOURS OF CONSULTATION WITH NEIL DIRECTLY, USE AS NEEDED

COME TO THE 1/2 DAY PHOENIX WORKSHOP: CLICK HERE FOR PRE-REGISTRATION DISCOUNTS

WHO BENEFITS FROM AUSTERITY? WALL STREET!

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

You might wonder why people, mostly republicans, are all about “spending cuts.” just for clarification here, spending cuts are what Europe calls “austerity measures.” every policy possibility has been played here and the worst one is clearly austerity or “spending cuts.” everyone calling for austerity is controlled by the banks. Everyone who is not controlled by the banks thinks it isn’t a bad idea to continue government safety nets and sponsor more commerce. Once upon a time Wall Street made its money riding the crest of successful economies, collecting brokerage fees for more and more deals. Not anymore. The Banks are intent on taking the capital — all of it. What then?

People think it makes sense to spend less money to have more. But when the government does that it has less, not more money, thus cutting off vital services. So you might want to think about who benefits as all the major industrialised nations go down the tubes. We know government loses, we know the people lose their services and pay more taxes, so who is it that benefits from the austerity spin?

WALL STREET is the answer. With the level of commerce declining, plummeting they can bet on a sure thing — that interest rates are going to go through the roof, which means that the prices of bonds already issued are going to fall like stones. Only on Wall street can you make bets on interest rates and bets on bonds or groups of bonds or banks or groups of banks. They are pushing the austerity engine and taking us all into a ditch while Wall Street rakes in whatever money is left in our limping economy.

Wall Street has not only turned the lending models on their heads they have succeeded at turning the policy models on their head. The results are unthinkable— Wall Street has created an incentive to kill commerce. And now they are so deep into those bets that the only game in town is putting every economy into crisis. Someone needs to pull the rug out from under these banksters and put them jail where they belong. As society gave them the license to create and grow liquidity for the engine of economic growth so too can society take it away when the banks bite the hands that fed them.

Paul Krugman Debunks Mitt Romney’s Economic Nonsense

By: Jason Easley

On CNN, Paul Krugman called out Mitt Romney today for spouting nonsense about the economy and explained why Romney’s plan to do what Greece did won’t bring prosperity to America.

Here are Krugman’s thoughts on Obama and Romney via CNN:

ZAKARIA: All this said and done, are you enthusiastic about President Obama? You were not for him in the Democratic primary four years ago.

KRUGMAN: Right. I mean, we’re a long way past where I think enthusiasm is the appropriate emotion for anything here.

But he’s learned a lot. And, you know, his heart’s always been in the right place, and I believe his head is now in the right place. And you certainly — of course, I can’t do endorsements, right? It’s a Times rule. So you have no idea who I prefer in this election.

(LAUGHTER)

But he certainly is talking sense about the economy, and Mitt Romney is talking utter nonsense. And you really do worry. In effect…

ZAKARIA: What is the single biggest piece of nonsense that Mitt Romney…

KRUGMAN: Mitt Romney is saying basically that spending cuts are how we’re going to get to prosperity. Mitt Romney is saying, see what’s happening in Greece and in Portugal and in Spain and in Ireland; let’s do that here.

Boy — you know, we’ve just had a massive test, human experimentation on a massive scale, in effect, alternative doctrines of economic management. We’ve just seen which doctrines are disastrous. And the Republican platform is, let’s put that doctrine that has just caused collapse in Europe — let’s put that doctrine into effect right here in America.

Krugman was right on the money. Republicans have been trying to play what they think is a clever game of pretending that what they have proposed isn’t austerity, while at the same time threatening to implement austerity if they don’t get what they want, which is austerity. History shows that economies suffocate under austerity, but Republicans like Mitt Romney and Paul Ryan keep pushing the insane idea is that we can do the same thing that Europe did, but expect a different result.

Republicans are using austerity as an economic justification for their policy of feeding the rich while starving everyone else. The Romney and Ryan plans by design don’t force any austerity measures on the wealthy. The austerity is designed for everyone else. The rich would benefit while America’s devolution into a society of haves and have nots would accelerate. The reality is that Spending cuts never bring prosperity, and many of the rank and file Republicans who are championing the cuts fail to understand that those cuts will be coming out of their hides. All of the Republicans over 65 years of age who support Romney haven’t put the pieces together that a vote for Mitt is a vote to slash their Medicare.

Mitt Romney is spewing contradictory economic nonsense, because the Republican platform is becoming little more than historically discredited feel good dreams of trickledown worship and gibberish.

Paul Krugman is right. A majority of his fellow economists know he is right. The American people know he is right, and history proves him correct, but the Republican Party is trapped in a suicidal fantasy economy of their own creation. It is this fantasy that Romney has to pander to in order to keep his base, and it is the same fantasy that Paul Krugman absolutely destroyed.

Pandemic Lying Admission: Deutsch Bank Up and Down the Fake Securitization Chain

Featured Products and Services by The Garfield Firm

NEW! 2nd Edition Attorney Workbook,Treatise & Practice Manual – Pre-Order NOW for an up to $150 discount
LivingLies Membership – Get Discounts and Free Access to Experts
For Customer Service call 1-520-405-1688

Want to read more? Download entire introduction for the Attorney Workbook, Treatise & Practice Manual 2012 Ed – Sample

Pre-Order the new workbook today for up to a $150 savings, visit our store for more details. Act now, offer ends soon!

Editor’s Comment:

One problem with securitization in practice even under the academic model is the effect on potential enforcement of the obligation, even assuming that the “lender” is properly identified in the closing documents with the buyer of the loan product and the closing papers of the buyer of the mortgage bonds (and we’ll assume that the mortgage bonds are real and valid, as well as having been issued by a fully funded REMIC in which loans were properly assigned and transferred —- an assumption, as we have seen that is not true in the real world). Take this quote from the glossary at the back of this book and which in turn was taken from established authoritative sources used by bankers, securities firms and accountants:

cross guarantees and credit default swaps, synthetic collateralized asset obligations and other exotic equity and debt instruments, each of which promises the holder an incomplete interest in the original security instrument and the revenue flow starting with the alleged borrower and ending with various parties who receive said revenue, including but not limited to parties who are obligated to make payments for shortfalls of revenues.

Real Property Lawyers spot the problem immediately.

First question is when do these cross guarantees, CDS, Insurance, and other exotic instruments arise. If they are in existence at the time of the closing with the borrower homeowner then the note and mortgage are not properly drafted as to terms of repayment nor identity of the lender/creditor. This renders the note either unenforceable or requiring the admission of parole evidence in any action to either enforce against the borrower or enforce the cross obligations of the new cross creditors who supposedly are receiving not just rights to the receivable but to the actual note and the actual mortgage.

Hence even a truthful statement that the “Trustee” beings this foreclosure on behalf of the “trust” as creditor (assuming a Trust existed by law and that the Trustee, and beneficiaries and terms were clear) would be insufficient if any of these “credit enhancements” and other synthetic or exotic vehicles were in place. The Trustee on the Deed of Sale would be required to get an accounting from each of the entities that are parties or counterparties whose interest is effected by the foreclosure and who would be entitled to part of the receivable generated either by the foreclosure itself or the payment by counterparties who “bet wrong” on the mortgage pool.

The second question is whether some or any or all of these instruments came into existence or were actualized by a required transaction AFTER the closing with the homeowner borrower. It would seem that while the original note and mortgage (or Deed of Trust) might not be affected directly by these instruments, the enforcement mechanism would still be subject to the same issues as raised above when they were fully actualized and in existence at the time of the closing with the homeowner borrower.

Deutsch Bank was a central player in most of the securitized mortgages in a variety of ways including the exotic instruments referred to above. If there was any doubt about whether there existed pandemic lying and cheating, it was removed when the U.S. Attorney Civil Frauds Unit obtained admissions and a judgment for Deutsch to pay over $200 million resulting from intentional misrepresentations contained in various documents used with numerous entities and people up and down the fictitious securitization chain. Similar claims are brought against Citi (which settled so far for $215 million in February, 2012) Flagstar Bank FSB (which settled so far for $133 million in February 2012, and Allied Home Mortgage Corp, which is still pending. Even the most casual reader can see that the entire securitization model was distorted by fraud from one end (the investor lender) to the other (the homeowner borrower) and back again (the parties and counterparties in insurance, bailouts, credit default swaps, cross guarantees that violated the terms of every promissory note etc.

Manhattan U.S. Attorney Recovers $202.3 Million From Deutsche Bank And Mortgageit In Civil Fraud Case Alleging Reckless Mortgage Lending Practices And False Certifications To HUD

FOR IMMEDIATE RELEASE                  Thursday May 10, 2012

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 today that the United States has settled a civil fraud lawsuit against DEUTSCHE BANK AG, DB STRUCTURED PRODUCTS, INC., DEUTSCHE BANK SECURITIES, INC. (collectively “DEUTSCHE BANK” or the “DEUTSCHE BANK defendants”) and MORTGAGEIT, INC. (“MORTGAGEIT”). 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 AG 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 announced today, MORTGAGEIT and DEUTSCHE BANK admitted, 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 today by United States District Judge Lewis Kaplan.

Manhattan U.S. Attorney Preet Bharara stated: “MORTGAGEIT and DEUTSCHE BANK treated FHA insurance as free Government money to backstop lending practices that did not follow the rules. Participation in the Direct Endorsement Lender program comes with requirements that are not mere technicalities to be circumvented through subterfuge as these defendants did repeatedly over the course of a decade. Their failure to meet these requirements caused substantial losses to the Government – losses that could have and should have been avoided. In addition to their admissions of responsibility, Deutsche Bank and MortgageIT have agreed to pay damages in an amount that will significantly compensate HUD for the losses it incurred as a result of the defendants’ actions.”

Acting Assistant Attorney General Stuart F. Delery stated: “This is an important settlement for the United States, both in terms of obtaining substantial reimbursement for the FHA insurance fund for wrongfully incurred claims, and in obtaining the defendants’ acceptance of their role in the losses they caused to the taxpayers.”

Giving Back to the Community through a variety of venues & initatives.

Making sure that victims of federal crimes are treated with compassion, fairness and respect.

www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  1/45/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

HUD General Counsel Helen Kanovsky stated: “This case demonstrates that HUD has the ability to identify fraud patterns and work with our partners at the Department of Justice and U.S. Attorney’s Offices to pursue appropriate remedies. HUD would like to commend the work of the United States Attorney for the Southern District of New York in achieving this settlement, which is a substantial recovery for the FHA mortgage insurance fund. We look forward to continuing our joint efforts with the Department of Justice and the SDNY to combat mortgage fraud. The mortgage industry should take notice that we will not sit silently by if we detect abuses in our programs.”

HUD Inspector General David A. Montoya stated: “We expect every Direct Endorsement Lender to adhere to the highest level of integrity and accountability. When the combined efforts and attention of the Department of Justice, HUD, and HUD OIG are focused upon those who fail to exercise such integrity in connection with HUD programs, the end result will be both unpleasant and costly to the offending party.”

The following allegations are based on the Complaint and Amended Complaint (the “Complaint”) filed in Manhattan federal court by the Government in this case:

Between 1999 and 2009, MORTGAGEIT was a participant in the DEL program, a federal program administered by the FHA. As a Direct Endorsement Lender, MORTGAGEIT had the authority to originate, underwrite, and endorse mortgages for FHA insurance. If a Direct Endorsement Lender approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD for the costs associated with the defaulted loan, which HUD must then pay. Under the DEL program, neither the FHA nor HUD reviews a loan before it is endorsed for FHA insurance. Direct Endorsement Lenders are therefore required to follow program rules designed to ensure that they are properly underwriting and endorsing mortgages for FHA insurance and maintaining a quality control program that can prevent and correct any deficiencies in their underwriting. These requirements include maintaining a quality control program, pursuant to which the lender must fully review all loans that go into default within the first six payments, known as “early payment defaults.” Early payment defaults may be signs of problems in the underwriting process, and by reviewing early payment defaults, Direct Endorsement Lenders are able to monitor those problems, correct them, and report them to HUD. MORTGAGEIT failed to comply with these basic requirements.

As the Complaint further alleges, MORTGAGEIT was also required to execute certifications for every mortgage loan that it endorsed for FHA insurance. Since 1999, MORTGAGEIT has endorsed more than 39,000 mortgages for FHA insurance, and FHA paid insurance claims on more than 3,200 mortgages, totaling more than $368 million, for mortgages endorsed for FHA insurance by MORTGAGEIT, including more than $58 million resulting from loans that defaulted after DEUTSCHE BANK AG acquired MORTGAGEIT in 2007.

As alleged in the Complaint, a portion of those losses was caused by the false statements that the defendants made to HUD to obtain FHA insurance on individual loans. Although MORTGAGEIT had certified that each of these loans was eligible for FHA insurance, it repeatedly submitted certifications that were knowingly or recklessly false. MORTGAGEIT failed to perform basic due diligence and repeatedly endorsed mortgage loans that were not eligible for FHA insurance.

The Complaint also alleges that MORTGAGEIT separately certified to HUD, on an annual basis, that it was in compliance with the rules governing its eligibility in the DEL program, including that it conduct a full review of all early payment defaults, as early payment defaults are indicators of mortgage fraud. Contrary to its certifications to HUD, MORTGAGEIT failed to implement a compliant quality control program, and failed to review all early payment defaults as required. In addition, the Complaint alleges that, after DEUTSCHE BANK acquired MORTGAGEIT in January 2007, DEUTSCHE BANK managed the quality control functions of the Direct Endorsement Lender business, and had its employees sign and submit MORTGAGEIT’s Direct Endorsement Lender annual certifications to HUD. Furthermore, by the end of 2007, MORTGAGEIT was not reviewing any early payment defaults on closed FHA-insured loans. Between 1999 and 2009, the FHA paid more than $92 million in FHA insurance claims for loans that defaulted within the first six payments.

***

Pursuant to the settlement, MORTGAGEIT and the DEUTSCHE BANK defendants will pay the United States $202.3 million within 30 days of the settlement.

As part of the settlement, the defendants admitted, acknowledged, and accepted responsibility for certain misconduct. Specifically,

MORTGAGEIT admitted, acknowledged, and accepted responsibility for the following:

www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  2/4

5/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

MORTGAGEIT failed to conform fully to HUD-FHA rules requiring Direct Endorsement Lenders to maintain a compliant quality control program;

MORTGAGEIT failed to conduct a full review of all early payment defaults on loans endorsed for FHA insurance;

Contrary to the representations in MORTGAGEIT’s annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations;

MORTGAGEIT endorsed for FHA mortgage insurance certain loans that did not meet all underwriting requirements contained in HUD’s handbooks and mortgagee letters, and therefore were not eligible for FHA mortgage insurance under the DEL program; and;

MORTGAGEIT submitted to HUD-FHA certifications stating that certain loans were eligible for FHA mortgage insurance when in fact they were not; FHA insured certain loans endorsed by MORTGAGEIT that were not eligible for FHA mortgage insurance; and HUD consequently incurred losses when some of those MORTGAGEIT loans defaulted.

The DEUTSCHE BANK defendants admitted, acknowledged, and accepted responsibility for the fact that after MORTGAGEIT became a wholly-owned, indirect subsidiary of DB Structured Products, Inc and Deutsche Bank AG in January 2007:

The DEUTSCHE BANK defendants were in a position to know that the operations of MORTGAGEIT did not conform fully to all of HUD-FHA’s regulations, policies, and handbooks;

One or more of the annual certifications was signed by an individual who was also an officer of certain of the DEUTSCHE BANK defendants; and;

Contrary to the representations in MORTGAGEIT’s annual certifications, MORTGAGEIT did not conform to all applicable HUD-FHA regulations.

***

The case is being handled by the Office’s Civil Frauds Unit. Mr. Bharara established the Civil Frauds Unit in March 2010 to bring renewed focus and additional resources to combating financial fraud, including mortgage fraud.

To date, the Office’s Civil Frauds Unit has brought four civil fraud lawsuits against major lenders under the False Claims Act alleging reckless residential mortgage lending.

Three of the four cases have settled, and today’s settlement represents the third, and largest, settlement. On February 15, 2012, the Government settled its civil fraud lawsuit against CITIMORTGAGE, INC. for $158.3 million. On February 24, 2012, the Government settled its civil fraud suit against FLAGSTAR BANK, F.S.B. for $132.8 million. The Government’s lawsuit against ALLIED HOME MORTGAGE CORP. and two of its officers remains pending. With today’s settlement, the Government has achieved settlements totaling $493.4 million in the last three months. In each settlement, the defendants have admitted and accepted responsibility for certain conduct alleged in the Government’s Complaint.

The Office’s Civil Frauds Unit is handling all three cases as part of its continuing investigation of reckless lending practices.

The Civil Frauds Unit works in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Mr. Bharara thanked HUD and HUD-OIG for their extraordinary assistance in this case. He also expressed his appreciation for the support of the Commercial Litigation Branch of the U.S. Department of Justice’s Civil Division in Washington, D.C.

www.justice.gov/usao/nys/pressreleases/may12/deutschebankmortgageitsettlement.html                  3/4

5/16/12                  USDOJ: US Attorney’s Office – Southern District of New York

Assistant U.S. Attorneys Lara K. Eshkenazi, Pierre G. Armand, and Christopher B. Harwood are in charge of the case.

%d bloggers like this: