The federal government sued one of the nation’s largest privately held mortgage brokers on Tuesday, saying its decade-long lending practices amounted to fraud and cost the government hundreds of millions of dollars and forced thousands of American homeowners to lose their homes.
The lawsuit in United States District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Allied Home Mortgage Corporation; its founder, Jim Hodge; and Jeanne Stell, the company’s executive vice president and director of compliance.
Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined further comment. At a news conference, Preet Bharara, the United States attorney based in Manhattan, said Allied had carried out its fraud through its authority to originate mortgage loans insured by the Department of Housing and Urban Development, or HUD. “The losers here were American taxpayers, and the thousands of families who faced foreclosure because they were could not ultimately fulfill their obligations on mortgages that were doomed to fail,” he said.
The prosecutor said the investigation continued, and “if and when we have sufficient evidence for a criminal case, we’ll bring it.” Helen Kanovsky, HUD’s general counsel, said the agency had stopped insuring loans for Allied and was seeking to prevent Mr. Hodge from participating in any government programs again after seeing the destruction that the fraud had caused in communities across the country.
According to the lawsuit, nearly 32 percent of the 112,324 home loans originated by Allied from Jan. 1, 2001, to the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD. The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and that HUD could face $363 million more in claims.
Allied, based in Houston, operated 600 or more branches at once but only maintained two quality control employees in its corporate office, requiring branch managers to assume financial responsibility for their branches, the lawsuit said. “Allied thus operated its branches like franchises, collecting revenue while the branches were profitable, then closing them without notice when they were not, leaving the branch managers liable for the branch’s financial obligations,” the lawsuit said.
The government said Allied had failed to impose its internal quality control plan, “effectively allowing its shadow branches to operate independently of any scrutiny whatsoever,” the lawsuit said.
Source: new York Times
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