[Ed. Note: When we first posted this article, the Justice Department’s investigation into Allied Home Mortgage and its owner, Jim Hodge, was well under way. A federal court in Houston would later sanction Allied Home Mortgage for over $300 million. That case was a whistleblower case and we are proud to have filed it.
Because whistleblower cases are filed under seal – meaning in secret – we were not able to discuss the whistleblower suit when this post was originally filed. The whistleblower lawsuit was and is the real story. Today we can share that story. Please see the link above.]
Allied Home Mortgage is no stranger to controversy. Although the largest private mortgage lender in the U.S., it has been the subject of numerous regulatory investigations and lawsuits. According to the Federal Register, Allied was just terminated by HUD from the Direct Endorsement program.
The Direct Endorsement program allows Allied and other lenders to underwrite single-family mortgage loans and submit them for FHA insurance. Institutional investors want the FHA backing so they know they can collect if the borrower defaults. Without the backing of someone like the Federal Housing Administration, home mortgages can’t readily be bought and sold.
The mortgage industry depends on brokers making sure loans are only given to qualified applicants. Much of the blame for the current mortgage crisis sits squarely on the shoulders of sloppy mortgage lenders.
When real estate kept going up and up and up, lenders got sloppy and wrote loans to people who couldn’t pay or didn’t qualify. Ultimately the bubble burst and home prices plummeted. By 2011, however, you would think sloppy underwriting practices would be a thing of the past. Apparently they are not.
HUD, of course, wants to make sure that mortgage brokers don’t cut corners and only write loans to qualified borrowers. HUD recently terminated Allied after the default rate of mortgages written by them in Ohio exceeded 250% of the average. In other words, Allied default rate is 2.5 times higher than the average. That’s a lot of bad loans.
Allied can reapply after 6 months but it must submit a report from an independent auditor outlining the reasons for the high default rate and offering a corrective action plan.
We believe that much of the problem lies with Allied and the tremendous financial pressures placed on local branch office managers. In many instances, manages cut corners and wrote loans they shouldn’t have just to pay their bills.
Allied is not alone in this latest crackdown and not all of its offices are affected.
Soon after we wrote this, Allied turned around and sued HUD claiming that the agency acted illegally in shutting down the company’s ability to issue taxpayer backed mortgages. Despite having one of the highest default rates in the nation, Allied demanded that taxpayers keep bailing them out.
Allied argued the government’s allegations were both conclusory and “unacceptably vague… unsupported by facts.” The distraction of lawsuit filed by the company against the government was short lived. In 2016 a jury would impose tens of millions of dollars in penalties on both Jim Hodge and Allied. The next year the court would triple those amounts.
Whistleblowers are entitled to receive between 15% and 30% of whatever the wrongdoers pay. In the Allied case, that could be almost one hundred million dollars.
Mahany Law is a full service, national whistleblower law firm. We represent mortgage company whistleblowers anywhere in the United States.
For more information, visit our whistleblower qui tam FAQ page. Ready to see if you have a case? Contact us online, by email or by phone . All inquiries are protected by the attorney – client privilege and kept confidential.