U.S. Sues Deutsche Bank for Subprime Trading
Ten years after the financial crisis that leveled the U.S. housing market, the federal government is taking civil action against the previous head of subprime trading at Deutsche Bank. The complaint accuses the former bank executive Paul Mangione of tricking investors, leading them to believe some $1 billion in securitizations were sound, when in fact they were not and ended up leaving investors to hundreds of millions of dollars in losses.
The complaint alleges Mangione was a key player in the bank’s illegal and fraudulent effort to scheme banks and other investors with two separate mortgage-backed securitizations. These were issued back in 2007, just a year prior to the market crash. These securitizations had a combined value of $1.4 billion.
Prosecutors allege Magione mislead investors about the quality of the loans being offered, even knowing that key characteristics were being misrepresented. The acting assistant to the U.S. attorney general alleges Magione was aware his office was making misrepresentations about key characteristics about compliance with lending standards and the ability of borrowers to repay the debt.
These were unsound mortgages. Magione and his department was aware these loans didn’t meet basic appraisal or credit standards as represented by the bank. As happened so often throughout the mortgage crisis, the bottom line of the bank was prioritized over principles of honesty and fair dealing.
While the U.S. Department of Justice is pursuing this option, it took 10 years to do it. What’s more, this is not a criminal action. Unlike the Savings and Loan crisis of the 1980s, our foreclosure defense lawyers in Miami know there have been scant few criminal prosecutions relating to the criminal actions of mortgage servicers. Almost all actions against these institutions and individuals have involved a civil monetary payout. Bear in mind: These actions cost millions of people their homes and livelihoods. Meanwhile, someone who robbed a bank would be facing decades behind bars.
Earlier this year, U.S. officials announced a $7 billion settlement with Mangione’s former employer, resolving pending federal civil litigation regarding residential mortgage-backed securities that were issued in 2006 and 2007. Of all the federal fines imposed on financial institutions in connection with wrongdoing preceding the housing crisis, it was among the largest, owing to its leading role in the economic downturn. Still, it was only half of what the government initially said it was seeking.
Still, this case against Mangione marks one of only a handful of times the government has pursued legal action against an individual. Meanwhile, a countless number of other mortgage-backed security traders are still running free, immune to any consequence.
Mangione reportedly played a central role in the scandal. He reportedly was the person who gave investors bad information about the bank’s origination practices as it pertained to DB Lending (formerly known as Chapel Funding), the bank’s wholly-owned subsidiary. Chapel was the main originator of the loans, and the subsidiary reportedly had lax standards when it came to appraisal accuracy, borrowers’ ability to pay and lending guidelines. In fact, approximately half of the loans in question had significant defects, and borrowers were far less credit worthy than the bank represented.
If you’re battling debt collection in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.