The United States and the city of Los Angeles filed two different lawsuits against a German Bank this week. The federal lawsuit accuses Deutsche Bank of mortgage fraud.

Meanwhile, the city alleges that “Deutsche Bank has become one of the largest slumlords in the City of Los Angeles.”

In the federal lawsuit, U.S. Attorney for southern New York Preet Bharara accuses Deutsche Bank of defrauding American taxpayers of millions, and potentially billions, of dollars. The bank and its U.S.-based subsidiary, MortgageIT, received insurance from the Federal Housing Administration for more than 39,000 home loans, worth over $5 billion, according to the complaint, filed Tuesday in New York’s Southern District Court.

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But there was a problem: many of those loans never qualified for government insurance in the first place, according to the suit.

“Deutsche Bank ignored every type of red flag and breached every duty of due diligence before underwriting thousands of federally insured mortgages,” Bharara said in a press release. “While the homes the defendants issued loans for may have been built on solid ground, the defendants’ lending practices were built on quicksand.”

In the scam, MortgageIT’s employees allegedly lied on the applications, winning federal insurance for mortgages in which borrowers failed to state their income or make downpayments in accordance with federal insurance rules. With the government promising to compensate investors if the loans failed, MortgageIT was able to charge investors higher prices for the loans, thus allegedly earning themselves more money on the deals.

Of the 39,000 mortgages for which MortgageIT won federal insurance, 3,100 have already failed, costing American taxpayers $386 million, according to the lawsuit.

“(T)hese lenders put millions of dollars of taxpayer funds at risk and violated the integrity of this important program by making false certifications to HUD,” Tony West, chief of the Justice Department’s civil division, said in a press release.

The losses so far may be just the tip of the iceberg. The problem with lenders filing fraudulent applications for FHA insurance was first uncovered in a report by the agency’s inspector general, which found that fully half of all mortgages insured by the federal government never met qualifications for the insurance in the first place. That could force taxpayers to pay over $8.4 billion in fraudulent claims, as we reported in March.

If that ratio holds true in Deutsche Bank’s case, that would mean the bank may have fraudulently received federal insurance for $2.5 billion worth of loans. With the U.S. attorney seeking treble damages, that translates to a potential fine of $7.5 billion for Deutsche Bank.

In Los Angeles, the city’s lawsuit accuses Deutsche Bank of failing to maintain more than 2,200 foreclosed properties. The suit also alleges that the bank wrongfully evicted thousands of people.

“We must fight blight by holding banks accountable when they create vacant nuisance properties that pose threats to our residents and destroy the quality of life in our neighborhoods, and we must protect vulnerable tenants from illegal evictions,” City Attorney Carmen Trutanich said in a press release.

Deutsche Bank responded by saying the city is suing the wrong party. According to comments made by a spokesman to American Banker, the bank serves as the trustee on the loans in question; and a different company actually services the loans, and is responsible for evictions and maintaining foreclosed properties.

Deutsche Bank did not immediately return calls seeking comment.

[Related article: Government May Owe $8.4 Billion on Fraudulent Loans]

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