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Feds Sue Allied Home Mortgage, Alleging $834M Fraud

Prosecutors slapped ""Allied Home Mortgage Capital Corp."":http://www.alliedhome.com/ with a lawsuit Tuesday, seeking to recoup $834 million in bad claims from two executives for their alleged roles in bilking the government over the course of a decade.


The ""complaint"":http://www.justice.gov/usao/nys/pressreleases/November11/alliedhomemortgagepr.pdf accused president and CEO Jim Hodge and EVP Jeanne Stell of violating federal law by knowingly misrepresenting mortgages to authorities, failing to keep up with quality control guidelines, and originating federally insured loans at unapproved branch offices across the country.

In a statement, ""U.S. Attorney Preet Bharara"":http://www.justice.gov/usao/nys/ called the Houston-based company's alleged conduct ""egregious"" and pledged to continue an ongoing investigation against the company.

""Allied and its CEO exploited a government insurance program to engage in a wholesale shifting of risk away from itself ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô playing a lending industry equivalent of heads-I-win and tails-you-lose,"" he said. ""The losers here were American taxpayers and the thousands of families who faced foreclosure because they could not ultimately fulfill their obligations on mortgages that were doomed to fail.""

Added ""HUD"":http://portal.hud.gov/portal/page/portal/HUD ""General Counsel Helen Kanovsky"":http://portal.hud.gov/hudportal/HUD?src=/about/principal_staff/general_counselor_kanovsky: ""We will not tolerate mortgage lenders who play fast and loose with


FHA's standards. These defendants demonstrated a pattern of recklessness and utter disregard for how we do business. They've harmed FHA, hurt homeowners, and now they'll be held to account for their actions.""

Spokespeople for neither Allied Home Mortgage nor HUD could be immediately reached for comment.

According to the complaint, the company originated more than 110,000 loans insured by the ""Federal Housing Administration"":http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration (FHA) for nearly 10 years.

Of the borrowers with those mortgages, it said, more than 30 percent have defaulted on their loans, with the rate for defaults hitting 55 percent between 2006 and 2007. The office said that loans fraudulently certified by Allied Home Mortgage have resulted in $834 million in payout claims from the FHA, with potentially $363 million more on the way.

Bharara and his office lodged accusations that the company deployed 600 ""shadow"" branches to originate loans with false identifiers that it presented to HUD.

Hodge allegedly directed senior staff to sign off on false statements to federal authorities despite their concerns. The complaint cites one instance in which Stell ordered a senior manager to execute a report on her behalf, saying in an e-mail that it ""serves [Hodge] right... thinking he doesn't have to play by the rules.""

The complaint said that Allied Home Mortgage also fraudulently obtained tax credits by standing up quality control centers in the U.S. Virgin Islands, staffed by employees that one visiting manager said ""did not know what HUD was or even what a mortgage was.""

The company also allegedly misrepresented their staff names and criminal records to federal authorities by knowingly employing felons with convictions in numerous states.

HUD and ""Ginnie Mae"":http://ginniemae.gov/ suspended the lender earlier Tuesday.


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