WHEN Deutsche Bank bought Mortgage IT in January 2007, an executive purred that the American lender would help to provide "a steady source of product for distribution into mortgage capital markets." Today the acquisition looks more like a public-relations embarrassment and a potential legal liability. In a civil-fraud lawsuit, the Justice Department has accused the two firms of repeatedly lying between 1999 and 2009 about the quality of mortgages they selected for inclusion in a government insurance programme. As a participating lender, Mortgage IT was allowed to get suitable loans backed by the Federal Housing Administration (fha), a government agency. Though the firm (and later Deutsche) certified annually that its mortgages were worthy of the insurance, the suit alleges that its qualitycontrol process was almost non-existent. One lonely employee was charged with auditing loans for compliance, and by the end of 2007 even he had been taken off the job to help with mortgage production. The firm ignored repeated requests to mend its ways. The findings of an external auditor hired by the firm were "stuffed in a closet and left unread and unopened".
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