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PREETBHARARAUnitedStatesAttorneyfortheSouthernDistrictofNewYorkBy:BRIANM.FELDMANAssistantUnitedStatesAttorney86ChambersStreet,ThirdFloorNewYork,NewYork10007TelephoneNo.(212)637-2777FacsimileNo.(212)637-2717Brian.Feldman@usdoj.govDefendants.UNITEDSTATESDISTRICTCOURTSOUTHERNDISTRICTOFNEWYORKUNITEDSTATESOFAMERICA,Plaintiff,
11
Civ._-against-ECFCaseDEUTSCHEBANKAGandMORTGAGEIT,INC.,
JuryTrialDemanded
TheUnitedStatesofAmerica(the"Government"),byitsattorney,PreetBharara,UnitedStatesAttorneyfortheSouthernDistrictofNewYork,bringsthisactionagainstDeutscheBankAG("DeutscheBank")andMortgageIT,Inc.("MortgageIT")(collectively"Defendants"),alleginguponinformationandbeliefasfollows:
INTRODUCTION
1.ThisisacivilmortgagefraudlawsuitbroughtbytheUnitedStatesagainstDeutscheBankandMortgageIT.Assetforthbelow,DeutscheBankandMortgageITrepeatedlyliedtobeincludedinaGovernmentprogramtoselectmortgagesforinsurancebytheGovernment.Onceinthatprogram,theyrecklesslyselectedmortgagesthatviolatedprogramrulesinblatantdisregardofwhetherborrowerscouldmakemortgagepayments.WhileDeutsche
 
BankandMortgageITprofitedfromtheresaleoftheseGovernment-insuredmortgages,thousandsofAmericanhomeownershavefaceddefaultandeviction,andtheGovernmenthaspaidhundredsofmillionsofdollarsininsuranceclaims,withhundredsofmillionsofdollarsmoreexpectedtobepaidinthefuture.TheGovernmentbringsthisactionseekingdamagesandpenaltiesforthepastandfutureclaimsthatviolatetheFalseClaimsAct,31U.S.C.§§3729
et
seq.,
andthecommonlaw.2.TheFederalHousingAdministration("FHA")oftheDepartmentofHousingandUrbanDevelopment("HUD")isthelargestmortgageinsurerintheworld.FHAmortgageinsurancemakeshomeownershippossibleformillionsofAmericanfamiliesbyprotectinglendersagainstdefaultsonmortgages,therebyencouraginglenderstomakeloanstoborrowerswhomightnotbeabletomeetconventionalunderwritingrequirements.FHAacceptsafixedlevelofrisksetbystatuteandHUDrules.FHAreliesonthisfixedlevelofrisktosetappropriatemortgageinsurancepremiumstooffsetthecostsofpayingFHAinsuranceclaims.Bycontrollingriskandsettingappropriateinsurancepremiums,FHAhasbeenabletooperatebasedsolelyontheincomeitgeneratesfrommortgageinsurancepremiumproceeds.Sinceitsinceptionin1934,FHAhasinsuredmorethan34millionhomemortgages.FHAcurrentlyinsuresapproximatelyonethirdofallnewresidentialmortgagesintheUnitedStates.3.Toassistasmanyqualifiedhomeownersaspossible,andtoprovidemaximumeconomicopportunitiestolendersinterestedinobtainingFHAinsuranceonmortgages,FHAoperatesaDirectEndorsementLenderprogramwithlendersintheprivatesector.TheDirectEndorsementLenderprogramgrantsparticipatinglenderstheauthoritytoendorsemortgagesthatarequalifiedforFHAinsurance.InreviewingmortgagesforeligibilityforFHAinsurance,2
 
DirectEndorsementLendersareentrustedwithsafeguardingthepublicfromtakingonrisksthatexceedstatutoryandregulatorylimits.DirectEndorsementLendersactasfiduciariesofHUDinunderwritingmortgagesandendorsingthemforFHAinsurance.4.TheintegrityoftheDirectEndorsementLenderprogramrequiresparticipatingDirectEndorsementLenderstocarefullyreviewmortgagestoensurecompliancewithHUDrules.HUDentrustsDirectEndorsementLenderswithgreatresponsibility,andthereforeplacessignificantemphasisonthelenders'qualifications.ToqualifyasaDirectEndorsementLender,alendermustimplementamandatoryqualitycontrolplan.Qualitycontrolplansarenecessaryto.ensurethatDirectEndorsementLendersfollowallHUDrules,andtoprovideproceduresforcorrectingproblemsinalender'sunderwritingoperations.5.Anessentialpartofeveryqualitycontrolplanistheauditingofallearlypaymentdefaults,
i.
e.,
thosemortgagesthatdefaultsoonafterclosing.Earlypaymentdefaultsmaybesignsofproblemsintheunderwritingprocess.Byreviewingearlypaymentdefaults,DirectEndorsementLendersareabletomonitorthoseproblems,correctthem,andreportthemtoHUD.EveryDirectEndorsementLendermustmakeanannualcertificationofcompliancewiththeDirectEndorsementLenderprogram'squalificationrequirements,includingtheimplementationofamandatoryqualitycontrolplan.6.Onamortgage-by-mortgagebasis,HUDrequiresDirectEndorsementLenderstoconductduediligencetoensurethateachmortgageiseligibleforFHAinsuranceassetforthinHUDrules.TheserulesexisttopreventHUDfrominsuringmortgagesthatexceedtherisklevelssetbystatuteandregulations.ADirectEndorsementLendermustassureHUDthateveryendorsedmortgagemeetsallHUDrules.HUDrequirestheDirectEndorsementLenderto3
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