A newly released 650-page report by the Senate’s Permanent Subcommittee on Investigations  highlights the role that Germany’s largest bank played in fueling the mortgage investment frenzy that sparked the U.S. housing meltdown and led to a global financial crisis.

Additional data compiled by iWatch News from securities filings and other sources shows that Deutsche Bank was more than just a salesman of mortgage-related investments.

During the boom years, the bank was an important patron of the U.S. subprime industry, providing billions in working credit to on-the-ground lenders and helping them package nearly $100 billion in mortgage-backed securities.

Deutsche Bank was “hugely involved in the securitzation of garbage loans” from an array of lenders, Irv Ackelsberg, a Philadelphia-based consumer attorney who investigated Ameriquest and other subprime lenders, said.

…

One of Deutsche Bank’s top allies in the subprime mortgage business was Ameriquest, a lender that critics called one of the nation’s worst subprime sharks.

Deutsche Bank provided one of the largest lines of working credit enjoyed by Ameriquest and its sister companies in 2005, according to confidential financial documents from Ameriquest’s parent company, ACC Capital Holdings, obtained by iWatch News.

Deutsche Bank provided a line of credit of $3 billion to Ameriquest and other lenders doing business under the ACC Capital banner, the documents show. The money – known as a “warehouse line” – provided the cash flow that allowed Ameriquest to make loans to homeowners.

Once the loans were signed by borrowers, Deutsche Bank also played a big part in packaging them into mortgage-backed securities and selling the securities to investors.  

Deutsche Bank was more involved in Ameriquest’s securities-marketing process than any other bank, according to an iWatch News analysis of a sample of 20 investment deals backed by Ameriquest mortgages in 2004 and 2005.

Deutsche Bank had a hand in deals that produced more than $18 billion in mortgage-backed securities – well over two-thirds of the dollar volume of the 20 Ameriquest deals in the sample data culled from the company’s SEC filings.

Former employees said Ameriquest used “boiler room” sales tactics, forged borrowers’ signatures on key disclosure documents, and pushed borrowers into loans they couldn’t afford by misrepresenting their finances on official mortgage paperwork.

In early 2006, Ameriquest agreed to pay $325 million to settle a nationwide investigation by authorities in 49 states and the District of Columbia. Ameriquest denied any pattern of wrongdoing, attributing any problems to the work of “rogue” employees.

…

The Senate committee’s April 13 report focused not only on Deutsche Bank but also on a number of actors that helped produce the financial crisis, including bond-rating agencies. The report says that case studies of Deutsche Bank’s and Goldman Sachs’ efforts to create and sell mortgage-backed investments “illustrate a variety of troubling practices that raise conflicts of interest and other concerns.”

The report describes how one Deutsche Bank trader repeatedly warned his coworkers about the poor quality of the loans backing these deals, calling some of the securities “pigs.” At one point, the trader sneered at the marketability of one security but said he “would take it and try and dupe someone” into buying it.

In 2007, the report says, Deutsche Bank rushed to sell off mortgage-backed investments amid worries that the market for subprime loans was deteriorating.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” a Deutsche Bank manager wrote in February 2007 about a deal stocked with securities created from raw material produced by Ameriquest and other subprime lenders.

Vir: The Center for Public Integrity, 20.4.2011