The U.S. Attorney in Manhattan on Tuesday accused one of the nation’s largest privately held mortgage companies of a decade of fraudulent lending — costing the government hundreds of millions of dollars and forcing thousands of Americans to lose their homes.
In a civil complaint filed Tuesday, U.S. Attorney Preet Bharara said Texas-based Allied Home Mortgage misused the federal mortgage insurance program by concealing information from regulators and failing to do due diligence as required by law.
Allied CEO Jim Hodge and Jeanne Stell, the executive vice president, were also charged.
The suit – which says the Allied bilked taxpayers out of at least $834 million — was filed Tuesday in civil court, but Bharara said criminal charges are also possible.
Bharara said Allied's business model constituted "a lending industry equivalent of heads I win, tails you lose."
Among the alleged improprieties at the company:
- Allied allegedly operated hundreds of unofficial "shadow" branches that were never authorized by Department of Housing and Urban Development.
- Managers at these branches were allegedly required to assume financial responsibility for their branches, so that when business became unprofitable, Allied's executives were shielded from any liabilities.
- Allied allegedly lied to regulators about its default rates.
- Allied allegedly was sanctioned in several states, including Arizona, Rhode Island, South Carolina and Washington, yet failed to disclose this to HUD.
- The company allegedly did only minimal quality control. One U.S. Virgin Islands-based staffer hired to do due diligence did not understand what a mortgage was.
Borrowers defaulted on almost one third of the 112,324 loans Allied made between 2001 and 2010, according to the government. In New York, the company granted 123 loans totaling over $44 million in 2007, and 207 loans totaling over $46 million in 2008.
No response was immediately available from Allied Home Mortgage.
In response to a question about why it took HUD so long to suspend Allied, Brian Sullivan, a HUD spokesman, said "suspending an HFA lender for the reasons we described today requires that we be able to understand who we are doing business with. In this case, Allied originated mortgages from non-approved branch offices and then lied about it."
In July, ProPublica and USA Today reported Allied's business practices had repeatedly come under scrutiny by state regulators, yet it was allowed to continue making FHA loans for years under scrutiny by state regulators.
The complaint (PDF) against Allied is similar to a suit filed against Deutsche Bank over its mortgage practices in May.
The investigation that led to the charges began with the Financial Fraud Enforcement Task Force, established by President Barack Obama in 2009.