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ALLIED SUED BY FEDS FOR TREBLE DAMAGES AND THE FEDS SUING JIM HODGE--MASSIVE FRAUD SCHEME

ALLIED SUED BY FEDS FOR TREBLE DAMAGES AND THE FEDS SUING JIM HODGE--MASSIVE FRAUD SCHEME

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Published by 83jjmack
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.
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.

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Published by: 83jjmack on Nov 01, 2011
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06/11/2013

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PREETBHARARAUnitedStatesAttorneyfortheSouthernDistrictofNewYorkBy:JAIMIEL.NAWADAYAssistantUnitedStatesAttorney86ChambersStreet,ThirdFloorNewYork,NewYork10007TelephoneNo.(212)637-2528FacsimileNo.(212)637-2730jaimie.nawaday@usdoj.gov
UNITEDSTATESDISTRICTCOURTSOUTHERNDISTRICTOFNEWYORK
UNITEDSTATESOFAMERlCA
exrei.
PETERBELLIPlaintiff,-against-ALLIEDHOMEMORTGAGECAPITALCORPORATIONDefendant.UNITEDSTATESOFAMERlCAPlaintiff-Intervenor,-against-ALLIEDHOMEMORTGAGECORPORATION,ALLIEDHOMEMORTGAGECAPITALCORPORATION,JIMC.HODGE,andJEANNEL.STELLDefendants.11Civ.05443(VM)
COMPLAINT-IN-INTERVENTIONOFTHEUNITEDSTATESOFAMERICAJURYTRIALDEMANDED
 
TheUnitedStatesofAmerica,byitsattorney,PreetBharara,UnitedStatesAttorneyfortheSouthernDistrictofNewYork,havingfiledanoticeofinterventionpursuantto31U.S.C.§3730(b)(4),bringsthiscomplaint-in-interventionagainstAlliedHomeMortgageCapitalCorporation("Allied"),AlliedHomeMortgageCorporation("AlliedHomeMortgage"),itsPresidentandChiefExecutiveOfficerJimC.Hodge,anditsExecutiveVicePresident,Jeanne
L.
Stell,alleginguponinformationandbeliefasfollows:
INTRODUCTION
1.ThisisacivilfraudactionbytheUnitedStatesofAmericatorecovertrebledamagesandcivilpenaltiesundertheFalseClaimsAct,asamended,31U.S.C.§§3729
etseq,
civilpenaltiesundertheFinancialInstitutionsReform,Recovery,andEnforcementActof1989("FIRREA"),12U.S.C.§1833a,andforinjunctivereliefundertheFraudInjunctionStatute,18U.S.C.§1345,arisingfromfraudontheUnitedStatesDepartmentofHousingandUrbanDevelopment("HDD")inconnectionwithAllied'sresidentialmortgagelendingbusiness,Assetforthmorefullybelow,Alliedhasprofitedforyearsasoneofthenation'slargestFHAlendersbyengaginginrecklessmortgagelending,floutingtherequirementsoftheFHAmortgageinsuranceprogram,andrepeatedlylyingaboutitscompliance.Inthepastdecade,AlliedhasoriginatedloansoutofhundredsofbranchesitneverdisclosedtoHUD,submittedknowinglyfalsestatementstoHUDconcerningitsbranchoperationsandaccumulatingsanctions,andliedtoconcealitsdysfunctionaloperationsfromHDD.Allied'sdecadeofconcealedmisconducthasresultedintensofthousandsofdefaultedloans,thousandsofAmericanhomeownersfacingeviction,andhundredsofmillionsofdollarsinlossestotheUnitedStates.2.HUD,throughitsFederalHousingAdministration("FHA"),insureslendersagainstlossestohomebuyers.FHAinsuresapproximatelyonethirdofallnewresidentialmortgagesin2
 
theUnitedStatesandisthelargestmortgageinsurerintheworld.UnderHUD'smortgageinsuranceprogram,ifahomeownerdefaultsontheloanandthemortgageholderforeclosesontheproperty,BUDwillpaythemortgageholderthebalanceoftheloanandassumeownershipandpossessionoftheproperty.HUDincursexpensesinmanagingandmarketingtheforeclosed-uponpropertyuntilitisresold.3.Byprotectinglendersagainstdefaultsonmortgages,FHAmortgageinsuranceencourageslenderstomakeloanstomillionsofAmericanswhocouldnototherwisequalifyforamortgage.FHAmortgageinsurancealsomakesmortgageloansvaluable
in
theresalemarket.4.ThecontinuedavailabilityofFHAmortgageinsurancerequiresthatHUDaccuratelyassesstheriskofdefaultontheloansitinsures.Toaccomplishthistask,HUDreliesonassurancesbylendersthattheloanstheysubmitforinsurancecomplywithHUDstandardsandguidelinesspecificallydesignedtomitigatetherisktoHUD,including,mostfundamentally,thattheloanoriginatedfromaHUD-approvedlenderandaHUD-approvedbranchoffice.5.Allied,whichbillsitselfasoneofthenation'slargestprivately-heldmortgagebrokers,was,untilrecently,anapprovedFHAloancorrespondent.Asaloancorrespondent,AlliedhadtheauthoritytooriginateHUD-insuredmortgageloansforsaleortransfertootherqualifyingmortgagees,knownas"sponsor"mortgagees.BetweenJanuary1,2001,andtheendof2010-whenHUDdiscontinuedtheloancorrespondentprogram-Alliedoriginated112,324homeloans.Ofthoseloans,35,801(ornearly32%percent)havedefaulted,resultinginmorethan$834millionininsuranceclaimspaidbyHUD.Ofthedefaultedloans,6,404wereearlypaymentdefaults,
(i.
e.,
loansthatdefaultedwithinthefirstsixmonths).In2006and2007,Allied'sdefaultrateclimbedtoastaggering55%,anditsearlypaymentdefaultrateexceeded3

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