The lawsuit, filed Tuesday in federal court in New York, alleges Deutsche Bank and its MortgageIT unit selected mortgages, violating the Federal Housing Administration mortgage insurance program rules "in blatant disregard of whether borrowers could make mortgage payments," The Wall Street Journal reported.
The government-insured mortgages later were resold, allowing Deutsche Bank and MortgageIT to profit, the suit claimed.
As of February, the federal program paid more than $386 million in insurance claims and costs because Deutsche Bank and MortgageIT allegedly approved non-qualifying home loans, and officials said they expected to pay "hundreds of millions of dollars in additional claims" in the coming months and years, the lawsuit said.
For 10 years beginning in 1999, MortgageIT was a direct endorsement lender, allowing it to approve FHA insurance for more than 39,000 mortgages totaling more than $5 billion, the Journal said.
"While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars insurance claims," the lawsuit said.
Besides compensatory and punitive damages, the lawsuit seeks treble damages and penalties under the False Claims Act.