Deutsche Bank knew mortgage co it bought lied: Justice Dept

(Reuters) – Deutsche Bank AG knew in 2006 that a mortgage company it was preparing to buy lied to the U.S. government about its mortgages, yet went ahead with the purchase and should be held financially responsible, the Justice Department said on Monday.

According to the department’s amended $1 billion complaint filed Monday evening with the U.S. District Court in Manhattan, Deutsche Bank was “on notice of and expressly assumed responsibility” for wrongdoing at MortgageIT Inc, which it bought in 2007.

The government first sued Deutsche Bank and MortgageIT in May saying they misled the Federal Housing Administration into believing that mortgages issued by MortgageIT qualified for federal insurance, when the quality was so poor that nearly one in three defaulted.

Deutsche Bank had previously sought to dismiss the complaint, in part by arguing that the government failed to show it assumed MortgageIT’s obligations.

But the government said the bank, in conducting due diligence prior to the merger, knew MortgageIT violated rules of the Department of Housing and Urban Development, which the FHA is part of, and made false representations to the agency.

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