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Deutsche Bank Fined $7.5M for Concealing Subprime Delinquencies

The ""Financial Industry Regulatory Authority"":http://www.finra.org. (FINRA) has fined ""Deutsche Bank Securities Inc."":http://www.db.com $7.5 million for ""negligently misrepresenting delinquency data in connection with the issuance of subprime securities.""


The independent securities regulator found that Deutsche Bank, with its U.S. headquarters in New York, misstated and underreported the percentages of mortgages that were delinquent in the prospectus supplements of six subprime residential mortgage backed securities (RMBS) issued in 2006, worth approximately $2.2 billion.

According to a statement from FINRA, Deutsche Bank described for investors its method of calculating delinquencies that was in fact different from the procedure actually used. As a result, delinquencies stats provided to potential investors came in lower than they actually were.


For example, in one RMBS deal, Deutsche Bank reported that 8.75 percent of the loans were between 30 and 59 days past due, corresponding to $14 million in delinquencies. But the actual delinquency rate computed under the method Deutsche Bank disclosed was significantly higher, with 24.02 percent of the loans between 30 and 59 days delinquent, corresponding to $38.5 million.

FINRA says the firm also failed to correct errors by a third-party vendor and servicers, which low-balled the historical delinquency rates of mortgages underlying Deutsche Bank's sale of 16 additional subprime RMBS issued in 2007.

""It is critically important that firms provide accurate information for their customers to use in evaluating investments,"" said James S. Shorris, FINRA's EVP and acting chief of enforcement.

Shorris went on to explain, ""Future returns on subprime securitizations are affected by mortgage holders who fail to make loan payments. Delinquency rates constitute material information for investors. Deutsche Bank Securities' failure to ensure that the delinquency information was accurate is an unacceptable failure to meet this important obligation.""

In settling this matter, FINRA said Deutsche Bank Securities neither admitted nor denied the charges, but consented to the entry of the agency's findings.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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