* Good chance of deal before Christmas - source
* Deutsche Bank to pay far less than mooted $14 bln - source
* Mortgage debt helped to fuel financial crash (Adds background, detail)
By Andreas Kröner and Karen Freifeld
FRANKFURT/NEW YORK, Dec 19 (Reuters) - DeutscheBank could this week agree a penalty with the U.S.Department of Justice over the sale of toxic mortgage debt, oneperson with direct knowledge of the matter said on Monday.
The penalty stems from a 2012 initiative launched by U.S.President Barack Obama, a Democrat, to penalise banks forallegedly selling sub-prime debt while misleading investorsabout the risks, a practice that contributed to the worsteconomic crisis since the 1930s.
"There is a good chance that the case will be off the tablebefore Christmas," the person said, adding that an announcementcould come as early as Wednesday.
This would remove the biggest uncertainty facing the bank,which had sought a deal before President-elect Donald Trump, aRepublican, takes office on Jan 20.
In September, news that Germany's flagship lender faced apenalty of up to $14 billion caused Deutsche's shares to plungeand later prompted the bank to deny speculation that it needed abailout from Germany.
Any last-minute hitch in negotiations could delay anannouncement and the person cautioned that a deal was not yetfinalised. A spokesman for the Department of Justice declined tocomment.
Deutsche Bank, which used to be a major player in the U.S.mortgage market, is set to pay far less than the $14 billionpenalty the U.S. authorities had initially asked for, the sourceindicated. Deutsche Bank declined to comment.
Deutsche Bank was one of the most high profile Europeanbanks involved. It had a 6.4 percent share of the retailmortgage backed securities market, according to rating agencyMoody's.
That was slightly less than Goldman Sachs, which reached asettlement earlier this year of roughly $5 billion.
Record settlements have also been reached with U.S. bankssuch as Bank of America.
Now the focus has turned to Europe's Deutsche Bank Royal Bank of Scotland, Credit Suisse, Barclays, UBS and HSBC. ($1 = 0.9586 euros) (Writing by Arno Schuetze; Editing by John O'Donnell and KeithWeir)