Government sues Deutsche Bank for mortgage deception

"While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future," the complaint stated.

It goes on to say that the Department of Housing and Urban Development has paid out more than $386 million in insurance claims and other costs tied to the shoddy loans.

The lawsuit paints the bank as rushing to get as many mortgages created and qualified for FHA insurance as quickly as possible, with insufficient attention paid to quality control of those mortgages. While MortgageIT hired a quality control manager in 2004, it kept the department "chronically understaffed," opening the door to "patterns of underwriting violations and mortgage fraud," the government said.

In fact, the suit claims that MortgageIT hired an outside auditor to review FHA-insured loans in 2004, which subsequently identified several violations. Employees "stuffed the letters, unopened and unread, in a closet" after receiving them, the suit claims.

Deutsche Bank purchased MortgageIT in 2007, which was ultimately shut down the following year.

A bank spokesperson told Bloomberg that the government's claims were "unreasonable and unfair" and that it intends to defend itself "vigorously."