U.S. Intervenes in False Claims Act lawsuit against Allied Home Mortgage

As reported by Bob Van Voris and Patricia Hurtado here Allied Home Mortgage Capital Corp., which last year claimed to be the biggest closely held mortgage broker in the U.S., was sued by federal authorities for alleged fraudulent lending practices.

The U.S., by and through the Southern District of New York’s U.S. Attorney’s office, has intervened on a qui tam filing by former branch manager, Peter Belli against Allied, founder and Chief Executive Officer Jim Hodge and Jeanne Stell, Allied’s chief compliance officer. The government claims one-third of the 112,324 loans originated by Allied from 2001 to through 2010 defaulted, forcing the U.S. Department of Housing and Urban Development to pay $834 million in insurance claims, according to a complaint filed in federal court in Manhattan today.

“Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program, and repeatedly lying about its compliance,” the U.S. said in the complaint. “In the past decade, Allied has originated loans out of hundreds of branches it never disclosed to HUD.”

The government, represented by the office of U.S. Attorney Preet Bharara in Manhattan, claims Hodge created a “culture of corruption” and used offshore compliance employees who didn’t even know what mortgages were. The U.S. is seeking triple damages from Allied under the federal False Claims Act.

Hud Audit

A 2000 HUD audit of two branch offices in Arizona found that Allied was operating 13 unapproved satellite offices, one of which originated 221 loans in 24 months, the U.S. said.

By 2006, HUD required that every office originating or processing Federal Housing Administration loans be approved by the agency. Allied continued to operate satellite branches, the U.S. claimed.

In applying for a new HUD ID, the U.S. said, Stell allegedly changed the address of the branch slightly, by adding a suite number or changing “Street” to “St.”, so that the FHA system couldn’t detect that it was issuing multiple IDs to Allied branches. In late 2010 and early 2011, Allied switched all of its remaining approved branches from the ownership of Allied to Allied Home Mortgage, thereby obtaining new IDs for the branches.

Allied employed individuals with criminal convictions in violations of HUD and FHA requirements, the U.S. said. Washington State banned a Spokane branch manager from working as a mortgage broker in 2006 after he was convicted of stealing clients’ money and laundering it, according to the complaint.

The case is U.S. v. Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).

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