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Subprime mortgage cleanup

May 22, 2012

United States deposit insurer FDIC has sued Deutsche Bank and other big financial groups, seeking damages for mortgage losses. The lawsuit is one more attempt to clean up the subprime mortgage scandal.

https://p.dw.com/p/14zjR
Sign indicating a home for sale
Image: AP

The Federal Deposit Insurance Corporation (FDIC) has filed a total of three lawsuits in courts in New York and Los Angeles, the US government agency said Tuesday. It's seeking damages of altogether $92 million (71.8 million euros).

FDIC accuses Germany's Deutsche Bank, Bank of America and other international and US-based banks of "misrepresenting the risks of residential mortgages" that they had packaged into securities.

In the lawsuit, the FDIC is acting as receiver for Illinois-based Strategic Capital Bank and Citizens National Bank, which collapsed in May 2009 in the wake of the subprime mortgage crisis.

The FDIC alleges the defendants misled investors in the registration statements for the securities, causing major losses once the poor quality and defective underwriting became evident.

A representative of Deutsche Bank declined to comment on the lawsuits following a request by the Reuters news agency on Tuesday.

Seemingly never-ending story

In 2007, the so-called subprime mortgage crisis erupted in the United States, resulting in a steep rise in mortgage delinquencies and a sharp decline of securities backed by these mortgages.

One year later, the soured mortgage debt led to the collapse of Lehman Brothers bank. That caused global concern about the soundness of U.S. credit and financial markets which unleashed the 2008 financial crisis.

Since then, the FDIC has filed numerous lawsuits against banks which issued securities backed by pools of sub-standard home mortgages, while several legal battles are being fought among financial institutions themselves.

In May this year, Deutsche Bank was able to reach an out-of-court settlement worth $200 million with the US administration, which had originally sought damages of $1 billion for failed mortgage-backed securities.

uhe/mll (Reuters, dpa)