Billion Dollar Mortgage Fraud Charges Leveled

Econintersect:   The U.S. Attorney’s Office for the Southern District of New York has filed a suit against Allied Home Mortgage Corp. alleging the commission of serial frauds over a period on ten years.  Two top officers, Jim Hodge, CEO and executive vice president and compliance director Jeanne Stell were also named in the suit.  Allied is one of the largest privately held mortgage lenders in the U.S.  The complaint states that the fraud has resulted in taxpayer costs of hundreds of millions of dollars and has cost thousands of people their homes. U.S. Attorney Preet Bharara called Allied’s frauds “egregious,” according to a report from Courthouse News Service.The complaint says that the FHA (Federal Housing Administration) has paid $834 million for mortgages originated and certified by Allied that have defaulted. An additional claims from defaults could add another $363 million, bringing the total to almost $1.2 billion.  The U.S. Attorney’s office claims that the actions by Allied were fraudulent.

From Courthouse News Service:

The nine-count complaint in intervention claims Allied, its CEO Jim Hodge, and executive vice president and compliance director Jeanne Stell defrauded the government and taxpayers by “knowingly and intentionally submit(ing) false loan certifications to HUD by originating FHA loans out of shadow branches, in violation of 18 U.S.C. § 1006”; made false statements to HUD; made false annual certifications to HUD; made false branch certifications to HUD; violated the False Claims Act; and made false loan certifications to HUD.

“Under the direction of Hodge, Allied has therefore engaged in a pattern of deception for at least a decade, attempting to evade regulatory scrutiny, and, when confronted, lying to protect its profitable position in the FHA mortgage market,” the complaint states.

Prosecutors claim Hodge ran the company like a Roman emperor: “Allied’s concealed corruption continued in part because Hodge persistently monitored and intimidated senior managers and other employees. For instance, Hodge provided his assistant with full access (including the ability to delete emails) to the email accounts of several key employees, including Allied’s general counsel, senior compliance officers, quality control managers, and others. Hodge also instructed his chief information officer to capture the password of Stell’s personal email account and installed an electronic listening device under the desk in the CIO’s office.

The complaint names a whistleblower, Peter Belli, ” a former branch manager for Allied,” according to the complaint.  According to Courthouse News, “Hodge’s iron fist could not squash all his employees.”

The U.S. complaint against Allied was filed November 1.  On November 3 a counter suit was filed. According to Reuters:

Allied Home Mortgage Corp. sued the U.S. Department of Housing and Urban Development for suspending the firm’s ability to write Federal Housing Authority-insured home loans.

Allied and James C. Hodge, founder and chief executive officer of the Houston-based firm that claimed last year to be the biggest closely held mortgage broker in the U.S., sued HUD Secretary Shaun Donovan and the agency after federal authorities sued Allied and Hodge on Nov. 1 for alleged fraudulent lending practices.

The same day the U.S. sued Allied, HUD suspended the firm’s ability to participate in FHA-insured mortgage loans. That suspension will wipe out 70 percent of Allied’s business, Hodge claimed in his lawsuit, which was filed yesterday in federal court in Houston.

Sources:  Courthouse News Service and Bloomberg

Hat tip to Roger Erickson