Allied Mortgage Fraud Could Cost|Taxpayers $1 Billion, USA Says

      MANHATTAN (CN) – Federal prosecutors sued Allied Home Mortgage Corp. and two of its top officers Tuesday, claiming one of the nation’s largest privately held mortgage lenders committed serial frauds that cost taxpayers hundreds of millions of dollars and cost thousands of people their homes. More than 30 percent of the 110,000 FHA mortgages Allied originated in the past decade are in default, and the default rate for loans in 2006-07 climbed to 55 percent, prosecutors said.

     The Federal Housing Administration has paid $834 million “for mortgages originated and fraudulently certified by Allied that are now in default,” the U.S. Attorney’s Office said in announcing the lawsuit. “An additional 2,509 loans are currently in default but not yet in claims status, which could result in additional insurance claims paid by HUD amounting to $363 million.”
     U.S. Attorney Preet Bharara called Allied’s frauds “egregious” and said the investigation is continuing.
     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.
     “Hodge also required employees to sign extremely broad confidential agreements and has sued numerous former employees for the slightest perceived breach, including a former tax manager for speaking to the IRS. In one recent such action, when Stell was asked what a former employee could say that was not confidential, she responded: ‘just what a good company it is.'” (Emphasis and parentheses in complaint.)
     Prosecutors say Allied ran hundreds of “shadow,” unapproved branch offices that originated FHA loans, and deceived HUD by using the ID number of a HUD-approved branch on the applications.
     “Allied’s undisclosed shadow branches could not be audited by HUD and their default rates were disguised by the default rates of branches whose IDs they were using – IDs that were based on false certifications. While some senior managers questioned this practice, it was continued under the direction of Hodge,” the U.S. Attorney’s Office said in its statement.
     And when Allied did seek HUD approval for new branches – it had 600 branches with HUD IDs – “it was based on fraudulent information,” prosecutors said. They called Allied’s quality control in its more than 600 branches “either dysfunctional or entirely nonexistent.”
     In the U.S. Attorney’s Office’s press statement, which contains just a whiff of the litany of allegations contained in the 43-page complaint, prosecutors said: “Allied falsely certified that it complied with HUD requirements and maintained financial and supervisory control over the branch. In reality, Allied’s branch offices were not subject to Allied’s oversight, and Allied bore little risk of loss for poor lending practices by the branches. Well aware that Allied’s branch operations violated HUD requirements, and that both she and Hodge had legal exposure, Allied’s Executive Vice President routinely had another senior manager sign the certifications to HUD because she knew they were false.”
     In a Feb. 21, 2009 email from Stell, attached as an exhibit to the complaint, Stell, apparently aware that the heat was on, wrote: “What do you think about the part that they want the OIG to go after not just Allied but the people responsible for the non-compliance. I had Jonny [another senior manager] sign the “add a branch” form for years for HUD as I knew this would eventually happen. It required that you swear the branches meet and will continue to meet HUD’s regulations. Jim [Hodge] has to be the biggest target personally for his disregard for the regulations. Serves him right never listening and thinking he didn’t have to play by the rules …….. js'” (Brackets not in exhibit, but provided by the U.S. Attorney’s Office in its press statement.)
     Hodge’s iron fist could not squash all his employees. The relator in the lawsuit, Peter Belli, is a Massachusetts resident “and a former branch manager for Allied,” according to the complaint.

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