The government has won a lawsuit against a former net branch mortgage giant that will cost the firm and its chief nearly $100 million.
Houston-based Allied Home Mortgage Corp. was suspended as an approved Federal Housing Administration mortgagee in 2011.
The
Department of Housing and Urban Development said Allied branches that were not FHA-approved were originating FHA loans.
“Allied Capital operated more than 100 ‘shadow’ branch offices that originated FHA loans without HUD authorization,” the Justice Department said in the statement. “As part of its scheme to deceive HUD, the jury heard that Allied Capital submitted loans originated by those branches to HUD using the ID numbers of approved branches. Allied Capital’s undisclosed shadow branches were not subject to HUD oversight and their default rates were disguised by the default rates of branches whose IDs they were using.”
In addition, HUD alleged that Allied
didn’t comply with FHA quality control requirements on nearly 1,200 loans and employed a principal, officer and director who was suspended.
HUD claims that the default rate on FHA-insured loans originated by Allied in 2006 and 2007 was 55 percent. HUD allegedly suffered $86 million in losses due to Allied’s activity.
At the same time as the suspension,
the Department of Justice filed a complaint-in-intervention to intervene in a pending qui tam whistleblower lawsuit in the Southern District of New York. The lawsuit alleged violations of False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989.
The
case was transferred to the Southern District of Texas in 2012.
On
Wednesday, the U.S. Attorney’s Office for the Southern District of Texas announced that a jury found Allied liable for $93 million in damages. Included in the award is more than $7 million against Allied President and Chief Executive Officer Jim C. Hodge, who the Justice Department said approved the shadow branch activity.
U.S. District Judge
George C. Hanks Jr. has yet to determine FIRREA penalties that will be in addition to the $93 million.
Allied had filed its own lawsuit in 2011 to try and prevent its FHA suspension, but that action was dismissed in 2014.
Allied ended operations in 2011.