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Chutzpah: Allied Mortgage Sues Back

HOUSTON (CN) - Allied Mortgage, which federal prosecutors this week accused of costing taxpayers $1 billion through serial mortgage frauds, has sued back, claiming the Department of Housing and Urban Development "improperly used its regulatory power of suspension to get, essentially, a combined temporary restraining order and preliminary injunction against Allied Corporation, without any judicial review or due process."

HUD suspended Allied's authority to originate and underwrite FHA-insured mortgage loans. Allied says the suspension "will effectively kill Allied Corporation as an ongoing business."

Allied and its CEO James Hodge, who also was a co-defendant in the government's lawsuit, claim "the suspension of Hodge from participation in any FHA-insured lending, failed to provide Allied Corporation or Hodge with due process of law, and the decision was arbitrary and capricious. Allied and Hodge are further entitled to injunctive relief by setting aside and/or invalidating the suspensions, because they face irreparable injury that cannot be fully compensated by money damages."

They want HUD's set aside as unconstitutional, plus costs.

They are represented by A. Kent Altsuler.

In his complaint against Allied and Hodge, the U.S. attorney in Manhattan said the mortgage frauds already have cost the Federal Housing Administration $834 million, "for mortgages originated and fraudulently certified by Allied that are now in default," and that another 2,509 mortgages in default but for which claims have not yet been filed could cost HUD another $363 million.

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 in their complaint, which was filed Tuesday.

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