The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG), assisted the U.S. Attorney’s Office, Southern District of New York, in conducting a review of MortgageIT, Inc. MortgageIT is a residential mortgage banking company headquartered in New York City, NY. Originally founded in 1988, MortgageIT was acquired by Deutsche Bank in 2007, and was a HUD-approved Title II nonsupervised mortgage company. Its home office became a direct endorsement lender in 1999 but voluntarily terminated its Federal Housing Administration (FHA) approval in October 2009. The objective of the review was to determine whether the MortgageIT loans reviewed were underwritten in violation of HUD’s FHA regulations.
We reviewed 21 FHA loans and other information and documentation, and referred our findings to the U.S. Attorney’s Office. On May 3, 2011, the U.S. Attorney’s Office commenced a civil action against Deutsche Bank and MortgageIT under the False Claims Act and the common law. On May 10, 2012, Deutsche Bank agreed to settle the complaint and pay $202.3 million to the United States to resolve the Federal Government’s claims for damages and penalties under the False Claims Act. Of that amount, FHA was to receive approximately $196 million. As part of the settlement, MortgageIT admitted, acknowledged, and accepted responsibility for various conduct, including failing to conform fully with HUD-FHA rules for maintaining a quality control program and for conducting reviews of all early payment defaults on loans endorsed for FHA insurance. It also agreed that it did not conform to all applicable HUD-FHA regulations from 1999 through 2009. MortgageIT further agreed that it falsely certified to HUD-FHA that loans were eligible for FHA mortgage insurance when they were not and HUD consequently incurred losses when some of those loans defaulted. Deutsche Bank admitted, acknowledged, and accepted responsibility for the fact that after MortgageIT became a wholly owned, indirect subsidiary of Deutsche Bank in January 2007, 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. It also agreed that one or more of the annual certifications made to FHA falsely stated that MortgageIT conformed to all applicable HUD-FHA regulations.