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MortgageIT to Pay $12.1M in Mortgage Discrimination Settlement

Deutsche Bank's former subsidiary MortgageIT has agreed to pay $12.1 million to settle claims that it discriminated against African-American and Hispanic consumers seeking mortgage loans, the U.S. Department of Housing and Urban Development said Tuesday.

HUD alleged that MortgageIT charged African-American and Hispanic borrowers higher interest rates and fees and denied a disproportionate portion of mortgage applications from minority borrowers in violation of the Fair Housing Act.

African-American borrowers at MortgageIT were 65% more likely to receive higher-priced loans and paid an average $707 more in fees, while Hispanic borrowers were 72% more likely to receive higher-priced loans and paid an average $906 more in fees, according to HUD's review of company loan data from 2007 and 2008.

"It's creditworthiness and ability to pay that matter when you apply for a loan, not your race or where you come from," Bryan Greene, HUD's acting assistant secretary for fair housing and equal opportunity, said in the release.  "This settlement reaffirms HUD's commitment to ensuring that minorities have equal access to mortgage loan products and that lending institutions meet their obligations under the Fair Housing Act.

US Sues MortgageIt, Deutsche Bank

The Department of Justice's civil fraud lawsuit against MortgageIt and Deutsche Bank seeking upwards of $2 billion struck me as newsworthy on at least two counts.

First, during the period in which Deutsche Bank's MortgageIt unit was allegedly defrauding the government and during which Deutsche Bank acquired the allegedly fraudulent mortgage unit for $430 million, a top in-house lawyer at Deutsche Bank was Robert Khuzami , who is now the director of enforcement at the SEC. Mr. Khuzami is not named in the suit or accused of any wrongdoing, but it sure will be interesting to see whether he had any role in the acquisition or in the transactions at issue.

The suit mentions that MortgageIt approved more than 39,000 mortgages for FHA insurance, totaling more than $5 billion in underlying principal. As of February 2011, more than 12,500, them, nearly a third, had defaulted. Of these, "more than 3,100 defaulted within six months, more than 4,500 defaulted within a year, and more than 6,900 defaulted within two years of closing." The federal Department of Housing and Urban Development has paid more than $386 million and owes another $888 million on these loans, a lot of the profits on the origination of which went to MortgageIt and Deutsche Bank. [The bank said the claims against it were "unreasonable and unfair," and that it would fight the suit, Bloomberg reports .]

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