Learn How Compliance Officers and Others Can Earn Cash Whistleblower Rewards
The attached article originally appeared in the IAAR news service. IAAR is the International Association of Asset Recovery. Its members specialize in fighting corruption and greed and in recovering money from fraudsters. Brian Mahany is a director of the organization.
After this article was written, a feral jury in Houston found that Allied and Jim Hodge had defrauded the government. Allied was ordered to pay over $300 million.
Mr. Mahany and his team filed the original complaint in the case. The case was filed in 2011 and went to trial in 2016. Allied and Hodge appealed all the way to the U.S. Supreme Court and lost.
Whistleblowers are entitled to a cash reward. To learn more, visit our whistleblower FAQ page. Interested in finding out if you have a case? Contact attorney Brian Mahany online, by email or by phone 202-800-9791.
Article Written by Alex Garcia at IAAR online
After 55 percent of the loans it wrote went to foreclosure, Allied Mortgage Capital is in the government’s crosshairs thanks in part to a whistleblower lawsuit brought on behalf of a former branch manager by IAAR Advisory Board member Brian Mahany, attorney Joe Bird and their firm, Mahany & Ertl.
A massive fraud case developing in New York threatens to bring down the largest privately held mortgage company in the nation, and early indications are that asset recovery will play a large role in sifting through the wreckage.
Allied Mortgage Capital Corporation, based in Houston, its affiliate, Allied Home Mortgage Corporation, and its CEO Jim Hodge and Executive Vice President Jeanne Stell are the targets of a civil mortgage fraud lawsuit and a whistleblower lawsuit under the False Claims Act (FCA) and Financial Institutions Reform, Recovery and Enforcements Act (FIRREA) in the Southern District of New York. US Attorney Preet Bharara adopted the lawsuit, first brought by Milwaukee-based Mahany & Ertl, operated by IAAR Advisory Board member Brian Mahany, and partner Joe Bird. Bird represents Peter Belli, a former Allied branch manager. The government joined Belli and others in claiming that Allied lied about its compliance with HUD regulations.
Loans written by Allied in 2006 and 2007 have shown a default rate of 55 percent – exponentially larger than the industry standard for loans written just before the real estate tumult of recent years. Belli and other whistleblowers claim the mortgage giant cut corners in order to write more loans.
From the complaint:
As a (Department of Housing and Urban Development)-approved loan correspondent and Direct Endorsement Lender, Allied originated HUD-insured mortgage loans for sale or transfer to other qualifying mortgagees, known as “sponsor mortgagees.” Allied was required to seek HUD approval for each office from which it originated FHA loans, and was also required to certify that it maintained a quality control (QC) program that reviewed loans that went into early payment default, and that it faced no sanctions in the states in which it operated. Although Allied certified to HUD that it complied with these key requirements, its certifications were knowingly false.
Allied operated hundreds of “shadow,” unapproved branch offices that originated FHA loans. To deceive HUD about this practice, Allied reportedly submitted loans from those branches to HUD substituting the ID number of a HUD-approved branch. Allied’s undisclosed shadow branches could not be audited by HUD and their default rates were disguised by the default rates of branches whose IDs they were using – IDs that were based on false certifications. While some senior managers questioned this practice, it was continued under the direction of Hodge.
Exhibit 1 in the civil case against Allied is a string of e-mails between Belli and Stell, where the former-Executive Vice President seems to out the company’s shady practices. In a Feb. 21, 2009 e-mail to Belli, Stell addressed a HUD Inspector General online post titled Allied Home Mortgage Capital Corporation, Houston, Texas, Did Not Fully Follow HUD’s Branch Office Requirements:
“I think [Allied] will be closing a lot more branches that are non-productive, not sign on nearly as many branches and then there’s getting it in compliance right now… Gheesh I sure am glad I left… Jim [Hodge] has to be the biggest target personally for his disregard for the regulations. Serves him right never listening and thinking he didn’t have to play by the rules.”
The impact of the alleged shoddy loans doled out over the years was quantifiable. “More than half of these loans are in default,” Mahany said. “It is just staggering.”
“Bad loans and sloppy underwriting are what got the US housing market in such a mess,” Bird said.
Until yesterday the case had been under seal since it was brought in April. Now, after an extensive digital outreach effort headed by Mahany & Ertl to engage other potential claimants and witnesses, the case is moving forward and branching out to other potential arenas. The law firm used a targeted blog and e-mail effort to solicit information about Allied. In total, 12 more former Allied employees have come forward about the mortgage giant’s lending practices.
Allied’s problems don’t end in civil court. Bharara alluded to potential criminal charges and two independent sources have verified that data has been seized and assets have been frozen by federal agencies at several Allied offices. To this point, according to Mahany, the SDNY US Attorney’s office has been cooperating with his firm in trying to balance the interest of claims from past-employees-turned-whistleblowers, the public and Allied customers.
“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,” Bharara said at a news conference. “Today, Allied’s ‘business as usual’ comes to an end.”
“We just aren’t sure there are a lot of pieces left in the pie,” said Mahany, adding that his firm is still trying to ascertain where his clients’ place in line would be as federal whistleblowers. According to the False Claims Act, Belli and other whistleblowers stand to gain a portion of the recovered amount.
As majority shareholder along with his wife, Hodge’s assets are in play, too. A source familiar with the case said he has much of his personal wealth stashed offshore, meaning the recovery effort is likely to include a cross-border component.
“The False Claims Act is an opportunity for the private sector in fraud case to work collaborate with the government instead of fighting to see who gets there first,” Mahany said.
Calls to Allied offices and Jim Hodge were not returned.