Mortgage Fraudsters Must Cough Up $93 Million

HOUSTON (CN) – A federal jury Wednesday ordered a Houston mortgage lender and its CEO to pay the federal government $93 million for fraudulently issuing thousands of federally insured loans that fell into default.

The jury found the companies formerly called Allied Home Mortgage Capital Corp. and Allied Home Mortgage Corporation and their CEO Jim C. Hodge violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989, in a decade-long scam.

After a five-week trial, the jury held Hodge liable for more than $7.2 million of the $92,982,775 it awarded the government.

“Pursuant to the FCA [False Claims Act], the damages in this case are subject to trebling. In addition, the court must impose a mandatory penalty of $5,500 to $11,000 for each violation,” the U.S. Attorney’s Office said in a statement. “U.S. District Judge George C. Hanks Jr., who presided over the trial, will determine the total penalties and damages at a later date.”

The litigation began in 2011 when federal prosecutors in New York sued Allied Home Mortgage Corp., Hodge and former executive vice president Jeanne Stell, alleging Allied insured loans to unqualified buyers who defaulted, costing taxpayers $834 million in insurance payouts.

Stell was dismissed as a defendant after she agreed to pay the government a $25,000 settlement in September.

Prosecutors said Allied issued 112,324 home loans from 2001 to 2010, and 35,801 of them, nearly 32 percent, defaulted.

The government presented reams of evidence, including interviews with 27 former Allied employees and 170,000 pages of subpoenaed documents that showed Allied originated loans from hundreds of “shadow branches” that it never disclosed to the Department of Housing and Urban Development, which insured the loans.

HUD requires lenders to get approval for each branch from which they intend to originate HUD-insured loans, so the agency can track default rates.

Prosecutors also presented evidence that Hodge told his employees to falsify quality-control reports, to give HUD the false impression that HUD-mandated loan reviews had been done, that Allied employed only “a handful of quality control employees to review loans from as many as 600 branch offices,” and that “many of those employees were unqualified to audit FHA-insured loans,” prosecutors said in a statement.

The case was filed under seal by a whistleblower, former Allied branch manager Peter Belli, and made public when the United States intervened in November 2011. The proceedings were transferred from Manhattan to the Southern District of Texas in August 2012, as Allied was based in Houston. The company has since changed its name to AllQuest Home Mortgage Corp.

Before the government sued Allied, it was one of the nation’s largest Federal Housing Administration lenders.

The FHA, which is part of HUD, has insured more than 34 million homes since it started in 1934, according to its website. FHA mortgage insurance reduces the risk for lenders by paying their claims if the homeowner defaults.