NEW YORK (

TheStreet

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Deutsche Bank

(DB) - Get Report

is being sued by the U.S. attorney's office, which, in a claim filed Tuesday, says the German Bank "repeatedly lied to be included in a government program to select mortgages for insurance by the government."

It is the first time the U.S. attorney's office has filed a lawsuit under the false claims act suing a Direct Endorsement Lender for fraudulent lending practices, according to a person close to the case.

U.S. Probes Banks' Mortgage Practices>>

The case involves MortgageIT, a lender Deutsche Bank purchased in 2006, and which was designated by the Federal Housing Administration, a unit of the Department of Housing and Urban Development (HUD) as a so-called Direct Endorsement Lender from 1999-2009, meaning it recommended loans to the FHA which the FHA then insured.

According to the claim MortgageIT endorsed more than 39,000 mortgages for FHA insurance, adding up to more than $5 billion in loan obligations.

But, according to the claim, "Deutsche Bank and MortgageIT failed to implement the quality control procedures required by HUD and their violations of HUD rules were egregious."

Among the violations were "failing to

dedicate sufficient staff to quality control." In one example "MortgageIT took the only staff-member dedicated to auditing FHA-insured mortgages and reassigned him to increase production instead," according to the claim. Further, the claim states that "when an outside auditor provided findings to Mortgage IT revealing serious problems, those finding were literally stuffed in a closet and left unread and unopened."

The lawsuit seeks civil and punitive damages, treble the government's damages for past claims paid, as well as the payment of, or indemnification against, future claims, among other damages.

"We just received the complaint and are reviewing it. We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously," said Deutsche Bank in a statement. A spokeswoman for the U.S. attorney for the Southern District of New York declined to comment.

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Written by Dan Freed in New York

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