Bloomberg News

Deutsche Bank to Pay $32.5 Million to Settle Mortgage Suit

March 26, 2012

Deutsche Bank AG (DBK), Germany’s biggest lender, agreed to pay $32.5 million to settle claims in U.S. litigation that it lied about the quality of home loans underlying securities it sold.

The investors that sued, including the Massachusetts Bricklayers and Masons Trust Funds, filed a motion for preliminary approval of the settlement in federal court in Central Islip, New York, today.

“The proposed settlement will provide a substantial monetary benefit to the settlement class,” lawyers for the plaintiffs wrote in the filing. U.S. District Judge Leonard D. Wexler must approve the deal.

Pools of home loans securitized into bonds were a central part of the housing bubble that, once burst, helped push the U.S. into the biggest recession since the 1930s. The market for mortgage-backed securities peaked at $2.3 trillion in 2007. Investors have filed class-action, or group, lawsuits against at least 16 private issuers of securities backed by mortgages.

The banks have argued the housing collapse, rather than any misrepresentation on their part, caused investor losses.

“We are pleased to have resolved this matter,” Renee Calabro, a spokeswoman for Frankfurt-based Deutsche Bank, said in a telephone interview.

Other Settlements

The Deutsche Bank settlement amount is less than two previously announced agreements in cases brought by investors against banks.

Bank of American Corp. reached a $315 million settlement with a group of investors who sued its Merrill Lynch unit claiming they were misled about mortgage-backed securities, according to a December court filing.

Wells Fargo & Co. (WFC) agreed to settle litigation against it for $125 million two weeks before a scheduled class- certification hearing in July. That case concerned $27.3 billion of certificates sold by the San Francisco-based bank.

In 2006, the plaintiffs bought from Deutsche Bank so-called pass-through certificates that gave them the right to the payments on the underlying home loans. The offering documents contained misstatements about loan underwriting standards, property appraisals, loan-to-value ratios and credit ratings on the certificates, according to the complaint.

At the same time Deutsche Bank was selling the securities, it was profiting from credit-default swaps by wagering that loans like those underlying the certificates would decline in value, the investors said.

‘Principal Losses’

More than 49 percent of the loans underlying one certificate series were delinquent or foreclosed on, the investors said. The tranche the Massachusetts Bricklayers and Masons Trust Funds, the lead plaintiff, bought “has already realized cumulative principal losses,” according to the complaint.

A sale when the suit was filed in 2008 would have netted between 70 and 80 cents on the dollar, according to the investors.

“The certificates are no longer marketable at prices anywhere near the price paid,” according to the complaint.

The case is Massachusetts Bricklayers and Masons Trust Funds v. Deutsche Alt-A Securities Inc., 08-cv-3178, U.S. District Court, Eastern District of New York (Central Islip).

To contact the reporter on this story: Thom Weidlich in New York at tweidlich@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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