Bloomberg News

Allied Home Mortgage Founder Sues HUD for Halting Privileges

November 07, 2011

(Updates with lawsuit excerpt in fourth paragraph.)

Nov. 3 (Bloomberg) -- Allied Home Mortgage Corp. sued the U.S. Department of Housing and Urban Development for suspending the firm’s ability to write Federal Housing Authority-insured home loans.

Allied and James C. Hodge, founder and chief executive officer of the Houston-based firm that claimed last year to be the biggest closely held mortgage broker in the U.S., sued HUD Secretary Shaun Donovan and the agency after federal authorities sued Allied and Hodge on Nov. 1 for alleged fraudulent lending practices.

The same day the U.S. sued Allied, HUD suspended the firm’s ability to participate in FHA-insured mortgage loans. That suspension will wipe out 70 percent of Allied’s business, Hodge claimed in his lawsuit, which was filed yesterday in federal court in Houston.

“The immediate suspension of authority to originate and underwrite loans will effectively kill Allied Corp. as an ongoing business,” Kent Altsuler, Hodge’s lawyer, said in the filing.

The government action will also cause Allied’s warehouse financing lines of credit to be terminated, according to the new lawsuit.

Regulatory Power

“This means that Allied Corp. will not only be unable to originate FHA-insured mortgage loans, but Allied will also be unable to originate any sort of mortgage loans -- whether FHA- insured or not,” Altsuler said.

“HUD has improperly used its regulatory power of suspension to get, essentially, a combined temporary restraining order and preliminary injunction against Allied Corp., without any judicial review or due process,” Altsuler said.

The government claims one-third of the 112,324 loans originated by Allied from 2001 through 2010 defaulted, forcing HUD to pay $834 million in insurance claims, according to its lawsuit, which was filed in federal court in New York.

“Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance,” the U.S. said in its complaint. “In the past decade, Allied has originated loans out of hundreds of branches it never disclosed to HUD.”

Triple Damages

The government claims Hodge created a “culture of corruption” and used offshore compliance employees who didn’t even know what mortgages were. The U.S. is seeking triple damages from Allied under the federal False Claims Act.

Hodge, in his suit, denied that he or Allied engaged in wrongdoing. He claimed the company’s “performance numbers are exemplary,” according to the filing.

“Allied Corp.’s total delinquency and claim ratio is 87 percent, or less than the national average,” Altsuler said in the suit.

Hodge asked the judge to set aside the HUD suspension, restore Allied’s FHA origination and underwriting privileges, and enjoin the government from taking any suspension actions against Allied until the U.S. suit is resolved.

The case is Allied Home Mortgage Corp. v Shaun Donovan, 4:11-cv-3864, U.S. District Court, Southern District of Texas (Houston).

The related case is U.S. v Allied Home Mortgage Corp., 11- cv-5443, U.S. District Court, Southern District of New York (Manhattan).

--With reporting assistance by Bob Van Voris and Patricia Hurtado in New York. Editors: Mary Romano, David Glovin

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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