The Department of Housing and Urban Development (HUD) and Ginnie Mae have suspended Allied Home Mortgage Corporation, thereby preventing the company from originating and underwriting new mortgages insured by the Federal Housing Administration (FHA) or issue securities through Ginnie Mae's Mortgage-Backed Securities program. The suspensions include by name the company's president and chief executive officer, James C. Hodge, and its executive vice president and chief compliance officer Jeanne L. Stell and come in the wake of a suit filed earlier in the day by the Justice Department (DOJ) in the U.S. District Court in Manhattan against the company and its two officers.
The suit alleges that Allied, one of the largest of the lenders approved to write for FHA, had engaged in fraudulent lending practices that have cost the government more than $834 million in FHA insurance claims. The suit said that the lenders had engaged "in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program, and repeatedly lying about its compliance."
The government is seeking unspecified damages and civil penalties for actions which, it says, caused nearly 32 percent of the 112,324 home mortgages originated by the company over a nine-year period to default, forcing thousands of homeowners to face eviction. This default rate climbed over 50 percent among loans written in 2006 and 2007 during which period the government paid $170 million to settle the Allied loans that had failed. Reuters reports the U.S. could face another $363 million in additional claims.
According to published reports, DOJ is charging that the company operated with impunity for many years "due (to) a culture of corruption created by Hodge." He allegedly eliminated the position of chief financial officer and other senior positions, intimidated employees and, was otherwise able to conceal its "dysfunctional operations." The suit claims that Allied operated 600 or more branches with little quality control, originated loans from unapproved offices and then concealed these violations with false information. The HUD and Ginnie Mae suspensions center around the branch office operations, specifically that the offices were not approved to originate mortgages, improperly accounted for the branch offices expenses, failed to implement a quality control plan or review a sample of loans as required, and submitted false certifications to HUD.
During a news conference in New York announcing the government's actions, HUD's General Counsel Helen Kanovsky said, "We will not tolerate mortgage lenders who play fast and loose with FHA's standards. These defendants demonstrated a pattern of recklessness and utter disregard for how we do business. They've harmed FHA, hurt homeowners, and now they'll be held to account for their actions."
The Associated Press said that a spokesman for the company declined comment saying he had not yet seen the suit. Reuters contacted Hodge at his Houston office and reported he had called the charges "so absurd."
