United States of America v Allied Home Mortgage | Feds File Massive Fraud Case Against Allied Home Mortgage

Feds File Massive Fraud Case Against Allied Home Mortgage

by Tracy Weber and Charles Ornstein ProPublica,

Federal prosecutors sued Allied Home Mortgage Capital Corp. and two top executives Tuesday, accusing them of running a massive fraud scheme that cost the government at least $834 million in insurance claims on defaulted home loans.

Houston-based Allied and its founder and chief executive, Jim Hodge, were the subject of July 2010 stories by ProPublica [1], which detailed a trail of alleged misconduct, lawsuits and government sanctions spanning at least 18 states [2] and seven years. Borrowers recounted how they had been lied to by Allied employees, who in some cases had siphoned their loan proceeds for personal gain. Some lost their homes.

Despite years of warnings, the federal government had not — until this week — impaired the company’s ability to issue new mortgages.

The suit [3], filed Tuesday in U.S. District Court in Manhattan, seeks triple damages and civil penalties, which could total $2.5 billion. Simultaneously, the U.S. Department of Housing and Urban Development suspended the company and Hodge from issuing loans [4] backed by the Federal Housing Administration. The company was also barred from issuing mortgage-backed securities through the Government National Mortgage Association (Ginnie Mae).

Allied has billed itself as the nation’s largest privately held mortgage broker with some 200 branches. (At one point, the company operated more than 600.) The sprawling network made Hodge, a folksy Texan, a rich man [5] with properties in three states and St. Croix and two airplanes to get to them.

Allied and Hodge played the “lending industry equivalent of heads-I-win and tails-you-lose,” U.S. Attorney Preet Bharara said at a news conference Tuesday. “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.”

The government’s complaint alleges that between 2001 and 2010, Allied originated 112,324 home mortgages backed by the FHA, which typically go to moderate- and low-income borrowers. Of those, nearly 32 percent — 35,801 — defaulted, resulting in more than $834 million in insurance claims paid by HUD.

In 2006 and 2007, the company’s default rate was a “staggering” 55 percent, the complaint said.

In addition, another 2,509 mortgages are currently in default, which could result in another $363 million in insurance claims paid by HUD.

Borrowers told ProPublica last year that company employees falsified records to bolster their credit worthiness and lured them into unaffordable deals by lying about the terms.

The government’s complaint says: “Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance.”

Tuesday’s action against Allied follows criticism that the government has been slow to act on rampant fraud and abuse in the mortgage market. In the case of Allied, the government had reams of evidence of possible misconduct. Among ProPublica’s findings last year:

  • Allied had the highest serious delinquency rate [6] among the top 20 FHA loan originators from June 2008 through May 2010.
  • Nine states sanctioned the firm from 2009 to mid-2010 for such violations as using unlicensed brokers and misleading a borrower.
  • Federal agencies cited or settled with Allied or an affiliate at least six times since 2003 for overcharging clients, underpaying workers or other offenses.
  • At least five lenders sued, claiming Allied tricked them into funding loans for unqualified buyers by falsifying documents and submitting grossly inflated appraisals, among other allegations.

Allied spokesman Joe James said the company was aware of the government lawsuit but had not received a copy of it and could not comment.

Hodge did not return a phone call and email seeking comment. But last year, he told ProPublica that the problems experienced at some of Allied’s branches should not tarnish his firm’s overall record. “If you look at the volume that we did or do,” he said, “it’s not significant.”

In an interview Tuesday, Helen Kanovsky, HUD’s general counsel, defended the time it took her department to take action.

“We had tried sanctions before,” she said. “We had assessed civil monetary penalties and that had not worked.

“The extraordinary remedy that we have — to be able to terminate somebody’s FHA capacity [and] basically put them out of business — requires a very high level of evidence and a high level of proof.”

The government’s 41-page lawsuit details an alleged scheme by Allied to deceive HUD about its employees and the risks associated with its loans. For years, it operated a network of “shadow” branches that were not approved by HUD and falsely certified that they met legal requirements.

Allied also disguised the high default rates of some branches, the complaint alleges, by tinkering with their addresses to apply for new HUD identification codes for the same offices. When HUD updated its system to prevent such manipulation, Allied simply moved all of its branches to a sister company and obtained new IDs, “thus again achieving a clean slate on its default rates,” the suit said. The sister firm, Allied Home Mortgage Corp., is also named as a defendant.

Hodge created a “culture of corruption,” the suit said. He “intimidated employees by spontaneous terminations and aggressive email monitoring, and silenced former employees by actual and threatened litigation against them.”

In one case, Hodge instructed his chief information officer to capture the password for the personal email account of Jeanne Stell, the company’s executive vice president and compliance officer. Then, he installed an electronic listening device under the information officer’s desk, the complaint alleges.

Allied also was employing felons, including a state manager who had been sentenced to 60 months in prison for distributing methamphetamine and a branch manager running the office under a falsely-assumed name, the suit said.

The government joined a whistleblower lawsuit filed by a former Allied branch manager in Massachusetts, Peter Belli. In addition to Allied and Hodge, the suit also names Stell as a defendant.

Belli had filed other suits against Hodge and Allied. He said Tuesday that, while his legal pursuit of his former employer had been long and hard, “I never really ever felt like quitting because I was married to the cause.”

Allied is also facing at least one federal criminal investigation into its now-shuttered Hammond, La., branch. In multiple lawsuits, borrowers allege that the office deceived them from 2005 through 2007 by misrepresenting loan terms, falsifying records, failing to pay off prior mortgages and diverting hundreds of thousands of dollars.

At his news conference, Bharara said Tuesday’s filing was a civil matter and that the investigation into Allied is continuing. “We will go wherever the facts lead us.”




Allied Lawsuit

18 Responses to “United States of America v Allied Home Mortgage | Feds File Massive Fraud Case Against Allied Home Mortgage”
  1. lvent says:

    Well Geez, how else will they pay themselves and their criminal friends their bonuses? News report last night said that FANNIE MAE just got approved for $12.8 billion dollars in bonuses….by the Government…Sheez..

    • lvent says:


      • lvent says:

        All of the politicians, should be forced by the people to resign…The Governors, the Mayors and all of their minions and cohorts……

      • lvent says:

        Bloomberg reporting White House to be subpoenaed over Solyndra..Looks like the shit is about the hit the fan…..and where is Obama right now? in Cannes….!!!! Maybe he ought to stay there permanantly!

  2. adownriverdiva says:

    All our lives we were taught that if you do the right thing, play by the rules, be responsible, pay your bills andbe honest, our lives would be good, worry-free and enjoyable.
    We did all that and more, some of us never missed a payment and still ended up in foreclosure and bankrupt!
    That was a shock!
    Others did everything by the books and sought help when things started getting bad, tried hard to avoid disaster and still ended up evicted, broke, homeless and confounded at how it all happened
    And what about those that jumped thru all the hoops that the banks demanded to get a modification and instead the banks doublecrossed us lied to us, LOST PAPERWORK and took our money and still foreclosed due to a back mortgage payments that were added on after they denied the modification (The banks never intended to give)
    NOT isolated instances but the norm, business as usual massive, unmitigated widespread, coast to coast fraud!
    Enough is enough!
    Why sit we here and die?
    The least we can do is fight back with every available weapon and the best weapons are the very same ones the banks have used against us!
    The bloodless coup is just beginning.

    • lies is all they tell says:

      HI DIVA, yes you have spoken my tune. me and my husband were the 789 credit score type. we had the best credit. do not understand how wells fargo can cause 2 people to go from the best credit to foreclosure and bk. pretty sad. i think if the do not want this to bea moral hazard thing start with the peopel that have been harmed the worst by this. the peopel who had the best credit , paid their bills on time. sad to have had wells fargo act the way they did when trying to get a modification. x me by thousands of people. then all the jobs in florida are gone. how do you pay bills if their are no jobs??

      • lies is all they tell says:

        @ diva oh by the way what state are you in ? i am looking for folks who had a bad deal with a modification. eventually i would like my lawyer to get depositions. we need to share what happened to us. if we band together, give the judge the proof of fraud that he/she wants there can not be a foreclosure only a negotioation

  3. lvent says:

    Obama and Holder have egg all over their faces…big time…..this fraud case is just the tip of the iceberg….It is way past time for a NATIONWIDE MORATORIUM ON FORECLOSURES…People are not getting due process in Civil Courts..they are getting robbed as a result of what they do not know about all of the fraud and all of the criminal acts these Loan Originators committed…. and the fact all of the attorneys are corrupt….Every foreclosure of a U.S. CITIZEN’s property is a criminal act against the American people if it was sold onto Wall Street and the fact that the U.S. GOVERNMENT IS ALLOWING it is treason……. Marcy Kaptor said it well…Property Law is power….and if you cannot find an attorney to represent you properly, do not leave your home…be squatters in your own home…Due Process is our right….and the majority of people in fraudlosure do not know that the crime of the century is still continuing to play out in court rooms across America everyday..THEY ARE STEALING OUR COUNTRY…THIS IS WHY…WALL STREET committed massive collateral mortgage frauds with our signatures…..600 trillion dollars worth backed by ZERO….THEY ARE STEALING AMERICA FOR UNSUSTAINABLE DEBTS….IF THEY TOOK BACK EVERY HO– USE AND PROPERTY IN AMERICA….THEY ARE STILL INSOLVENT…WALL STREETS DEBT CAN NEVER BE REPAID NO MATTER HOW MUCH THEY ARE ALLOWED TO STEAL…THIS IS A HITLER PLAN….

    • adownriverdiva says:

      It’s way past time for the people to stand up and do what we have to do to preserve our homes, especially since the govt is slow and negligent in helping us properly. They are always letting the banks slide and get away with murder.
      The plan was to break the power the people had in owning land, being able to maintain a bit of wealth in our homes and living relatively free.
      It was put into action to deprive us of as much of our wealth and freedom as possible in the shortest amount of time.

      Enough is enough
      We have been sold out in so many ways by so many who were supposed to be helping us.
      The biggest failure is our govt, HUD was supposed to be the watch dog, the protector of the homeowners.
      What happened?
      How is it that the banks managed to pull a fast one over on HUD?
      What am I talking about?
      When you get a FHA or VA loan, that loan is guaranteed by the govt, if you fail to pay up, the Feds pay the banks.
      When HUD or the VA pays the bank loan off, who now owns the house?
      HUD and the VA, right?
      So how is it that after getting the payment, HUD and the VA allows the banks to continue with the foreclosure and EVICTION!
      ONLY THE OWNER CAN EVICT, and the owner is now the govt! Not the banks!
      The next thing the bank does is list the house with a real estate broker and sell the house, THAT THEY NO LONGER OWN!
      And allow them to do this repeatedly with the same houses,over and over again.
      Is HUD and the VA complicit with the banks? Are they the silent partners in the destruction of our nation by allowing the banks to run amok?
      It’s bad enough that the govt lets the banks set the rules for foreclosures, turns a blind eye and a deaf ear to all the illegal actions by the banks and lenders.
      HUD and the VA sit back like cowards before a bully and do nothing.
      The same govt that could round up tens of thousands of Japanese Americans and send them all to concentration camps. The govt took their homes, their lands, their businesses, and their freedom away without trial or any evidence of any kind of wrong doing?
      The same govt that had no problem issuing demands of Eminent Domain and taking over whatever land for whatever purpose they had in mind! Same govt that gave away land that belonged to the American Indians by treaty, same govt that grabbed most of the land west of the Mississippi to hold in trust and refuse to allow anyone without some cash to buy a leasehold for oil drilling or mining, to live on that land.
      Since when do bank rules and regulations surpass govt law and legislation?
      President Obama let his advisors force the HAMP program on the people and still allowed the banks to screw over the people with the very program that was supposed to help!
      How could the best minds in govt not see that everything the banks were doing was illegal and unjust.
      When the banks say jump, the govt says how high?
      It’s all so wrong on so many levels!
      Massive fraud and theft is rampant and the only one who gets caught is Bernie Maddoff?
      And he’s not even a banker!
      Troops can be rallied to go overseas to stop injustice and tyranny but can’t gather two national guardsmen to stop bank thugs from breaking into homes and illegally evicting innocent citizens of our own nation?

      It ain’t over, wait until Occupy Wall st. grabs hold of the foreclosure fiasco and starts demanding that all foreclosed homes be returned to the rightful owners!

  4. Bill McAuliffe says:

    I’m with all of you. Interesting how Allied has it’s Corporate offices in New York; like Countrywide, (BofA) and Lord knows who else. Fidelity Title? Oh yeah. I would never be able to prove it with all of the Securitazations et.al. but it would not surprise me in the least if they all weren’t “Bundled” together in their Common quest. (Greed) Just B of A has so many subsidiaries it would make your head turn 360 degrees. How they even manage all of this heap of fraud, and misdirection is beyond my scope of understanding. I just hope SOMEONE or some ENTITY in Our Government has the huzpa to go after these “suits”. But that would require Character which seems to be sorely lacking in today’s environment. You’d think some lawyer would want to get rich off of this stuff. What’s up with that? (Meaning: Haven’t seen it yet) Are they getting paid off? If so….think how much money is involved THERE!

  5. Igor says:

    When is the US Govt going to prosecute the VA Loan Guarantee/Bank fraud case?!

  6. Wayne says:

    I Question …. What took them so long and why aren’t they going after BofA – Chase – GMAC – and Wells Fargo.
    To serve and Protect the people after all the foreclosures sounds a bit unfair to say the least.
    I Want Justice …. that’s all … Nothing More and Nothing Less … For all of “We the People of the 99%”

  7. pendinglawsuit says:

    Barry Fagan v Wells Fargo Bank

    Re: Link to Lis Pendens with Evidence of Deed of Trust alteration and fraud by Wells Fargo Bank.


    And evidence of multiple authors of Wells Fargo Bank employee Rhonda Bernard Thomas


  8. marilyn lane says:

    When is the US Government going to go after William P Foley
    CEO of Fidelity National Title, Chair of Lender Process Service
    and a host of his other entities that relied on fraud to parlay
    that into stealing billions from the citizens of this country.

  9. Lies is all they tell says:

    when i started telling my husband that i received another lettter from pam bondis office that again they are fowarding my information to wells fargo he got really angry and said i dont want to hear anymore of the is bool shoot i have worked the past 35 yrs of my life for to lose everything to scum bags. All our money gone we put our 20% down on a home thatwas fraudly appraised and a mortgage application witha fraudulent monthly salary. Reverse underwriting at its best. Why r they not taking down wells! Bofa and chase they all did the same thing? We want our wealth back all the fla jobs r gone we cant pay our bills with out jobs??. So now our credit it ruined its a viscious circle peopeles

    • adownriverdiva says:

      To:lies is all they tell says

      I’m back in Michigan after being forced to move to Atlanta just to have place to live with my adult kids.
      Now my house is for sale at the county tax auction because the lady that bought it got ripped off too and just stayed till they came to put her out(took 4 years). I want to check to see if it’s sold again. Thought about buying it back, what a joke, bad joke. It’s now cheaper than when it was first bought back in 1973!
      Seriously, could get it for $1000 or so but they foreclosed on most of my neighborhood and it looks like a a ghost town now.
      How do they sleep at night, knowing that they have helped devastate whole sections of cities nationwide?
      There was a lawyer on here that said people should just file a SATISFACTION OF MORTGAGE PAPER and that would put a cloud on the title and stop the bankers. Considering all the fake papers and stuff being filed by the banks using their methods almost seems right. If they can lie and get away with it…
      Anyway, in my case I got a mortgage with Worldwide Financial, my broker was one of the guys I actually worked with. I knew something was up when the feds came looking for him and he had just packed up and ran out of the office about 15 min before the feds showed up. I had signed with Worldwide, who sold it to GMAC who foreclosed because I missed 1, just one payment. I contacted them and made arrangements to make up the payment and get back on track and the Rep they assigned never sent the papers, answered call or emails and nobody ever answered the phone on the special number I was given to call the one time I got to talk to a human.
      Found out about the foreclosure trial the day after the court hearing. Worldwide went out of business, GMAC foreclosed but HFCSB is on the record as the owner who sold the file again to another company that went of business after selling the house to the lady who just got evicted.
      It’s all so unreal and confusing, that now it seems like I dreamed the whole nightmare. I learned alot for this site, things I never thought of before, all kinds of great information.
      Right now I’m kinda burned out on it all, but I won’t stop fighting. I pray that all this blows up in the banks faces and that they do go out of business after having to pay everybody back and restore the homes they stole!

  10. housemanrob says:

    …..now that’s corruption……Mr Hodge must not have the protection of…….or be one, of the 1%. Pity…..trying to move up with the big boys….from the penthouse to the outhouse!

  11. Debbie says:

    This is a start but there are others who should get the same treatment…

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