Jim Hodge and Allied Home Mortgage left a bad taste in the mouths of many Allied employees and homeowners too. Neither Hodge nor his mortgage company are strangers to controversy. The two have faced countless lawsuits by lenders, wage claims, arbitration claims by former branch managers, and enforcement actions by at least 9 states. The government says that Allied Home Mortgage had one of the highest default rates in the nation on their mortgages. In fact, the default rate was so bad that HUD shut them down.
Jim Hodge was the principal of Allied and many believed he has nine lives. Even after being shut down, Hodge turned around and took the audacious step of trying to sue the government. He claimed that HUD violated the rights of Allied Home Mortgage. Of course he failed to acknowledge that he violated the rights of thousands of homeowners and employees. That’s our opinion, of course.
The straw that broke the camel’s back was a 2011 whistleblower case filed by a former Allied branch manager, Peter Belli. That case would later lead to the HUD action and ultimately a $92 million dollar jury verdict against Allied in November of 2016. That same jury said Jim Hodge was personally responsible for $22,110, 396. [The case was filed by the author of this post, attorney Brian Mahany, and Joe Bird of MahanyLaw.]
The biggest hit, however, came on September 14th of 2017. Keep reading!
History of Claims Against Allied Home Mortgage
The dawn of the new millineum was marked by rapidly increasing prices in the real estate market. Much of that activity was fueled by shoddy mortgage underwriting. If you had a pulse, there was probably a mortgage company willing to loan you money.
As long as home prices were increasing, buyers that found themselves over their head could sell and get out. The problem was that some mortgage companies were putting folks in homes that they could never afford. And who was at the top of the list of bad mortgage underwriters? Countrywide and Allied Home Mortgage.
Mortgage lenders like Countrywide and Wells Fargo are familiar household names but lesser known Allied Home Mortgage was in the same league. In its heyday, it was the 5th largest FHA lender in the country. The company had over 2000 branches which makes it larger than almost all its rivals. And it also had a terrible default rate. HUD says almost 55% of the loans written by Allied in 2006 and 2007 defaulted!
Like the game musical chairs, at some point the music stopped. And when the music in the housing industry stopped in 2007 / 2008, prices plummeted and millions of Americans found themselves underwater.
Uncle Sam was on to Allied long before the crash. In September 2003, Allied settled claims brought by HUD. The government claimed Allied was gouging customers for credit reports.
In September of 2005 Allied was again on the hot seat, this time for more serious charges. HUD claimed the company improperly inflated the incomes of buyers. When a mortgage company fudges income numbers simply to get someone in a home, default rates typically skyrocket.
Because most home mortgages are insured by the FHA, VA, Fannie Mae or Freddie Mac, taxpayers foot the bill when a loan defaults. Not Allied. They made their money in commissions and fees and were long out of the picture. Allied settled those charges with no admission of wrongdoing.
In September of 2006, the U.S. Department of Agriculture claimed that Allied mismanaged a rural rental housing loan program.
As the real estate market tanked in late 2007, hundreds of employees claimed they were not paid. The U.S. Department of Labor jumped in that fray. Once again, Allied Home Mortgage was able to settle the charges and remain in business.
The above enforcement actions don’t even include the nine state actions we found nor an apparent criminal investigation by the U.S. Secret Service.
Jim Hodge & Allied Home Mortgage – the Beginning of the End
The ultimate demise of Jim Hodge and his mortgage empire began in early 2011 when former branch manager Peter Belli filed a whistleblower complaint against Hodge and Allied. As a manager within the company, Peter knew the inner workings of Allied and of its many shortcomings.
The whistleblower complaint was filed under the False Claims Act. Under that law, whistleblowers can file claims in the name of the United States. The claims are filed under seal meaning they are secret. While the case is sealed, the government is given the opportunity to investigate in secret. In the end, if the case is successful, the whistleblower bringing the action can claim 15% to 30% of whatever the government collects from the wrongdoers.
The case didn’t remain sealed long. The allegations against Allied Home Mortgage were so brazen and the company’s arrogance so severe that the government intervened in the action several months later. At the same time, HUD took action to stop Allied from issuing mortgage backed by the United States.
The Government Intervenes and Takes Over Prosecution
Under the False Claims Act, the government has the right to intervene and take over prosecution of a whistleblower case. In November 2011, the case was transferred from Boston to the U.S. Attorney’s Office in Manhattan and unsealed.
According to the Justice Department’s complaint, Allied Home Mortgage’s compliance department was paper thin and wasn’t interested in compliance. The government’s complaint, which is available here, said, “Allied utterly failed to conduct audits of its branches or review its early payment defaults as it was required to do by HUD… Even while it was operating 600 or more branches at a time, Allied maintained only two quality control employees in its corporate office.”
Later prosecutors said, “Allied maintained a handful of additional quality control staff members in St. Croix, in the U.S. Virgin Islands, but its offshore employees had no mortgage experience and, according to multiple witnesses, ‘did not even know what a mortgage was.’”
Prosecutors also said that Hodge’s right hand woman, Executive Vice President Jeanne Stell, allowed certifications to be sent to HUD even though she knew them to be false. (In order to sell a mortgage and earn its commission, a mortgage company needs to have the loan backed by the FHA, Fannie Mae or Freddie Mac or some other guaranty agency. Almost every residential loan in the country is directly or indirectly backed by the government. To get the guaranty and sell the loan, Allied had to certify that the loan was in compliance with all HUD and FHA regulations.)
Prior to trial, Jeanne Stell blinked and settled. She ultimately cooperated with the government. A defiant Jim Hodge and Allied went to trial. (The entities going to trial were Allied Corporation and Allied Capital.)
On November 29th, the jury found in favor of the government and against Jim Hodge and the Allied defendants. The government was awarded $92,982,775 in damages, including $7,370,132 against Jim Hodge personally. A copy of the jury verdict can be found here.
The jury found for the government under both the False Claims Act and a separate law called the Financial Institutions Reform Recovery and Enforcement Act (FIRREA).
Allied Home Mortgage, the Final Chapter?
Despite losing before a jury, Hodge and Allied didn’t sit still. Instead, they demanded the judge set aside the jury verdict and declare themselves as the winners. In the alternative, they demanded a new trial.
They lost. Not only did they lose, U.S. District Court Judge George C. Hanks, increased the amounts Allied and Hodge must pay! On September 14th, Judge Hanks ruled that Allied Corporation must now pay $268,757,929 plus interest. Jim Hodge must pay $23,140,296 plus interest. Allied and Hodge must also separately pay $2,200,000 in penalties under the FIRREA statute.
Why the increase?
The False Claims Act allows courts to triple damage awards. Allied not only sought to toss the jury verdict against it, they also tried to convince the court that any losses suffered by the government were not caused by them. Judge Hanks didn’t buy their arguments, however.
According to Judge Hanks, “Even a cursory review of the trial record reflects that the United States presented significant and credible evidence from multiple sources from which a jury could conclude that Allied’s conduct of recklessly underwriting and originating loans from unregistered branch offices was a substantial factor in the submission of claims… Rather than making an isolated or occasional mistake, Allied engaged in a prolonged, consistent enterprise of defrauding the United States.”
[Click on the link for a detailed discussion of the Allied litigation.]
How to Claim Your Own Whistleblower Award
Most of the large enforcement actions against banks and mortgage companies were initially initiated by whistleblowers. To qualify for an award, you must have “original source” or inside information. Loan officers, underwriters, quality assurance workers and branch managers have all been successful whistleblowers in recent years.
Not every case is the size as Allied Home Mortgage but multi-million dollar awards in the financial industry are common.
For more information or to learn if you may qualify for a whistleblower award, our visit our whistleblower – false claims act information page. Have questions or want to see if you qualify? Contact attorney Brian Mahany at or by phone at (direct). All inquiries are kept strictly confidential and protected by the attorney – client privilege. Legal services are provided on a contingent fee basis meaning no fee unless you win.
MahanyLaw – America’s Mortgage and Bank Fraud Whistleblower Lawyers