Seen quoted in Reuters BY JONATHAN STEMPEL AND GRANT MCCOOL
Prosecutors sued a large U.S. mortgage broker and two top executives for an alleged decade-long fraud that cost the government hundreds of millions of dollars on risky home loans.
The lawsuit seeks triple damages and civil fines against Allied Home Mortgage Capital Corp, which once billed itself as the largest privately held U.S. mortgage broker; Jim Hodge, its founder and chief executive; and Jeanne Stell, an executive vice president and compliance director.
It contended that Allied violated the federal False Claims Act by misleading the government into believing its loans qualified for federal insurance, when its mortgages were so poor nearly one in three went into default.
This “reckless” lending, it said, cost the Department of Housing and Urban Development (HUD) $834 million in insurance claims and forced thousands of homeowners out of their homes.
“The losers here were American taxpayers and thousands of families who faced foreclosure” because they could not make payments on mortgages that were “doomed to fail,” U.S. Attorney Preet Bharara in Manhattan said at a news conference. “Today, Allied’s business as usual comes to an end.”
Reached by telephone at his Houston office, Hodge called the government’s allegations “so absurd.” A spokesman for the company had no immediate comment.
The government said 35,801, or nearly 32 percent, of 112,324 HUD-insured mortgage loans that Allied made from 2001 to 2010 defaulted. It said 2,509 more defaulted loans could result in $363 million of further payouts. The default rate reached a “staggering” 55 percent in 2006 and 2007, it added.
CRACKDOWN ON LENDERS, EXECS
Tuesday’s announcement is part of a government crackdown on some lenders and executives it believes contributed to the housing crisis by originating risky home loans that should not have been made, insured or sold.
Six months ago, the government accused Deutsche Bank AG in a similar, $1 billion fraud lawsuit of misleading it into insuring risky mortgages. Deutsche Bank has sought to dismiss that lawsuit.
Bharara said that the government expects to bring more lawsuits of this type. He said the case against Allied is not finished, and in response to reporters’ questions left the door open for criminal action.
“If and when we have sufficient evidence to bring a criminal case, we will bring it,” Bharara said.
In the complaint, the government also accused Allied of making many loans through hundreds of “shadow” branches that had not received HUD approval and had poor quality control.
It is seeking triple damages on a variety of defaulted loans and a permanent ban on FHA loans made through branches that lacked HUD approval. Allied was an FHA loan correspondent until HUD shut that program last year, the complaint said.
The lawsuit was filed in U.S. District Court in Manhattan, and expands upon a whistleblower lawsuit filed in May by Peter Belli, a former Allied branch manager in Massachusetts.
Belli oversaw a half-dozen Allied branch offices before being fired in 2007 after nine years at the company, court papers show. He is in other litigation with Allied over alleged unpaid commissions and expense reimbursement.
Tuesday’s lawsuit is “a chance to make up what they stole from him,” Belli’s lawyer Joe Bird said in an interview. “It is also a chance for the government to make a statement to the mortgage industry that ignoring rules and harming the economy is not going to be tolerated.”
Belli declined to comment when reached by phone.
The government also accused Hodge of having encouraged a “culture of corruption” by eliminating other management, intimidation, and silencing former employees by suing them.
Its lawsuit included an email that the government said Stell sent to a former Allied employee soon after a February 2009 HUD audit report faulted Allied branches.
“Jim has to be the biggest target personally for his disregard for the regulations,” Stell wrote, referring to Hodge. “Serves him right never listening and thinking he didn’t have to play by the rules.”
The government said Hodge and his wife, Kathy, own 99 percent of the company, while their son Jamey owns 1 percent.
The case is U.S. ex rel. Belli v. Allied Home Mortgage Capital Corp, U.S. District Court, Southern District of New York, No. 11-05443.
The whistleblower in this lawsuit, Peter Belli is represented by Joe Bird and Brian Mahany of Mahany Law. Unfortunately Mr. Belli suffered an untimely death before the case was successfully tried before a federal jury in Houston. We are proud to have filed this case and for the opportunity to represent Peter before his tragic passing.
The case was tried in 2016. After several unsuccessful appeals, the verdict against Allied and Jim Hodges stands. The company must pay the government over $300 million. Hodges was personally ordered to pay millions as well.
After the verdict was announced, Preet Bharara said,
“For years, Jim Hodge and Allied lied to HUD in order to fraudulently reap profits from the FHA mortgage insurance program. After a month-long public trial where all their misconduct was exposed, a jury has held Mr. Hodge and Allied responsible for their lies and has made them pay for losses the United States suffered on loans that would never have been insured by HUD absent their lies.”
The case against Allied and Hodges was filed under the federal False Claims Act and FIRREA. Both laws allow whistleblowers to obtain cash rewards for reporting misconduct involving government programs. Because the home loans issued by Allied were backed by the FHA, the case was eligible for prosecution under the False Claims Act.
Whistleblowers with inside information about fraud are eligible to receive up to 30% of whatever the government collects from wrongdoers. When the government takes over prosecution, as it did in our case, the maximum reward is 25%. As of this writing the Justice Department and court has not determined the amount of the reward.
To learn more about the False Claims Act, download our 11 Step Whistleblower’s Guide. You do not need to provide a name or email address to collect a reward.
Ready to see if you qualify for a reward? Contact attorney Brian Mahany online, by email or by phone 202.800.9791. Cases accepted nationwide.
Mahany Law – America’s Whistleblower Lawyers