FEDS SUE ALLIED HOME MORTGAGE FOR LENDING FRAUD

In U.S. ex rel. Belli v. Allied Home Mortgage Capital Corp, U.S. District Court, Southern District of New York, No. 11-05443, the U.S., on Tuesday November 1, 2011, sued one of the largest U.S. mortgage brokers and two of its top executives for an alleged decade-long fraud that cost the government hundreds of millions of dollars on risky home loans. The lawsuit seeks triple damages and civil fines against Allied Home Mortgage Capital Corp., which billed itself as the largest privately held U.S. mortgage broker, Jim Hodge, its founder and chief executive, and Jeanne Stell, its executive vice president and compliance director.


The lawsuit contends that Allied violated the federal False Claims Act by misleading the government into believing its loans qualified for federal insurance, when its mortgages were so poor nearly one in three went into default.  This "reckless" lending cost the Department of Housing and Urban Development (HUD) $834 million in insurance claims and forced thousands of homeowners out of their homes.


In a Manhattan news conference, U.S. Attorney Preet Bharara stated that "The losers here were American taxpayers and thousands of families who faced foreclosure" because they could not make payments on mortgages that were "doomed to fail."  The government states that nearly 32 percent of the HUD-insured mortgage loans that Allied made from 2001 to 2010 defaulted.  The default rate reached a "staggering" 55 percent in 2006 and 2007, costing the U.S. taxpayers hundreds of millions.


The U.S. government is finally, yet selectively, cracking down on some lenders and executives it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.  Six months ago, the U.S. government accused Deutsche Bank AG in a similar $1 billion fraud lawsuit of misleading the government into insuring risky mortgages. 


The Feds expect to bring more lawsuits of this type and may institute a criminal case- "If and when we have sufficient evidence to bring a criminal case, we will bring it," Bharara said.  In the complaint, the government also accused Allied of making many loans through hundreds of "shadow" branches that had not received HUD approval and had poor quality control.  It is seeking triple damages on a variety of defaulted loans and a permanent ban on FHA loans made through branches that lacked HUD approval. Allied was an FHA loan correspondent until HUD shut that program last year, the complaint said.


The government also accused Hodge of having encouraged a "culture of corruption" by eliminating other management, intimidation, and silencing former employees by suing them.  Its lawsuit included an email that the government said Stell sent to a former Allied employee soon after a February 2009 HUD audit report faulted Allied branches.  "Jim has to be the biggest target personally for his disregard for the regulations," Stell wrote, referring to Hodge. "Serves him right never listening and thinking he didn't have to play by the rules.”  The government said Hodge and his wife, Kathy, own 99 percent of the company, while their son Jamey owns 1 percent.

So there you have it, the Feds are ratcheting up their civil lawsuits against liable companies/executives in their shady mortgage lending practices.  However, their liability will only be monetary in such civil suits.  We hope to see more criminal complaints filed so that corruption and greed gets its due justice.