Deutsche Bank has reached a $95 million settlement with Maryland stemming from the housing crisis that will funnel $80 million to provide new mortgages or mortgage relief to eligible consumers as well as help finance affordable housing.
The settlement resolves civil claims that the bank misled investors. The bank did not lend directly to consumers but instead packaged and sold mortgages into complex securities known as "residential mortgage-backed securities and "collateralized debt obligations."
The settlement represents the state's negotiated share of a $7.2 billion settlement Deutsche Bank reached with U.S. Department of Justice in January that included $4.1 billion for consumers.
It's the largest such agreement reached so far by a state related to Deutsche Bank's conduct during the financial crisis, Maryland Attorney General Brian E. Frosh said Thursday.
"Deutsche Bank has acknowledged that it deceived investors about the quality of the residential mortgages backing their complex securities," Frosh said in the announcement.
Frosh said the bank failed to take steps such as verifying loan-to-value ratios, home buyers' credit worthiness and property values for the mortgages that backed the securities.
"They didn't do due diligence," Frosh said in an interview. "They specifically didn't do it, and they admitted in a statement of facts they didn't do it."
Deutsche Bank officials declined to comment on the agreement with Maryland, a bank spokesman said.
For Maryland, the agreement with Deutsche Bank was among the largest related to the mortgage crisis. The state reached a $75 million settlement agreement with Bank of America in August 2014, which was shared by multiple governmental entities and pension programs. The state also shared in an additional $150 million with two other states that went toward mortgage forgiveness and forbearance, low- to- moderate-income lending, community reinvestment and affordable rental housing.
The state also particpated in a $25 billion settlement in 2012 with five mortgage servicers, including Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial, for breaking laws and abusing borrowers in the rush to foreclose on properties. Maryland's share was about $1 billion.
"Bank settlements that return money to the community can be really helpful for the community," said Dan Ellis, executive director of Neighborhood Housing Services of Baltimore.
He said previous bank settlements have provided millions of dollars for down payments and closing costs on home purchases or housing counseling for first-time buyers, much of it for low- and moderate-income buyers.
His organization has provided hundreds of loans for downpayments or closing costs, some of which are forgivable for homeowners who remain for a set period of time or deferred until a home is sold, then lent to the next buyer.
"It keeps the money in the community," he said.
As part of the settlement, Deutsche Bank will offer loan forgiveness or forbearance to consumers who are behind on payments or owe more than their home is worth. The bank does not own loans but provides financing for such modifications.
The agreement gives incentives to Deutsche Bank to offer financing for first-time buyers as well as for loans to consumers living in areas hit hardest by the foreclosures or those who lost a home to foreclosure or short sale.
The bank also is required to offer financing to nonprofits to finance low income housing developments.