The lawsuit is for more than $1 billion with regards to allegations that the institute recklessly selected mortgages to be included in a government insurance program.
A complaint filed by the Justice Department in Manhattan alleged that the Frankfurt-based lender and its MortgageIT unit acted against the US False Claims Act by presenting fraudulent information to obtain mortgage insurance from the Federal Housing Administration of the US Housing and Urban Development Department.
It read: "While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction."
The government has paid hundreds of millions of dollars in insurance claims as a result of the bank's actions, the complaint went on to claim.
Last month, Deutsche Bank posted a 17 per cent increase in profits for the first quarter of 2011, as it experienced record earnings at its consumer-banking and retail units.
By Asim Shah