Allied Mortgage Hit with DOJ Suit, HUD Suspension

The Department of Housing and Urban Developmentrn(HUD) and Ginnie Mae have suspended Allied Home Mortgage Corporation, therebyrnpreventing the company from originating and underwriting new mortgages insuredrnby the Federal Housing Administration (FHA) or issue securities through GinniernMae’s Mortgage-Backed Securities program.   The suspensions include by name the company’srnpresident and chief executive officer, James C. Hodge, and its executive vicernpresident and chief compliance officer Jeanne L. Stell and come in the wake ofrna suit filed earlier in the day by the Justice Department (DOJ) in the U.S.rnDistrict Court in Manhattan against the company and its two officers. </p

The suit alleges that Allied, one of thernlargest of the lenders approved to write for FHA, had engaged in fraudulentrnlending practices that have cost the government more than $834 million in FHArninsurance claims.  The suit said that thernlenders had engaged “in reckless mortgage lending, flouting the requirements ofrnthe FHA mortgage insurance program, and repeatedly lying about its compliance.”</p

Therngovernment is seeking unspecified damages and civil penalties for actionsrnwhich, it says, caused nearly 32 percent of the 112,324 home mortgagesrnoriginated by the company over a nine-year period to default, forcing thousandsrnof homeowners to face eviction.  Thisrndefault rate climbed over 50 percent among loans written in 2006 and 2007rnduring which period the government paid $170 million to settle the Allied loansrnthat had failed.  Reuters reports the U.S. could face another $363 million in additional claims. </p

According to published reports, DOJ isrncharging that the company operated with impunity for many years “due (to) arnculture of corruption created by Hodge.” rnHe allegedly eliminated the position of chief financial officer andrnother senior positions, intimidated employees and, was otherwise able tornconceal its “dysfunctional operations.” rnThe suit claims that Allied operated 600 or more branches with littlernquality control, originated loans from unapproved offices and then concealedrnthese violations with false information. rnThe HUD and Ginnie Mae suspensions center around the branch officernoperations, specifically that the offices were not approved to originaternmortgages, improperly accounted for the branch offices expenses, failed tornimplement a quality control plan or review a sample of loans as required, andrnsubmitted false certifications to HUD. </p

During a news conference in New York announcingrnthe government’s actions, HUD’s General Counsel Helen Kanovsky said, “We willrnnot tolerate mortgage lenders who play fast and loose with FHA’srnstandards.  These defendants demonstrated a pattern of recklessness andrnutter disregard for how we do business.  They’ve harmed FHA, hurtrnhomeowners, and now they’ll be held to account for their actions.”</p

 The Associated Press said that a spokesmanrnfor the company declined comment saying he had not yet seen the suit.  Reuters contacted Hodge at his Houston officernand reported he had called the charges “so absurd.”

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