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Allied Home Mortgage’s FHA Privileges Reinstated by Judge

November 16, 2011

(Updates with excerpt from ruling in fourth paragraph.)

Nov. 15 (Bloomberg) -- Allied Home Mortgage Corp. can originate and underwrite Federal Housing Authority-insured home loans, a judge said, reversing a U.S. agency’s suspension of those privileges.

The U.S. sued Houston-based Allied Home Mortgage and Chief Executive Officer James C. Hodge in Manhattan federal court on Nov. 1, and the Department of Housing and Urban Development suspended the company’s FHA lending privileges the same day. The U.S. said Allied “repeatedly” lied about its compliance with FHA mortgage requirements.

Hodge sued HUD a day later in federal court in Houston, claiming the loss of FHA privileges would “effectively kill Allied” and eliminate 723 jobs. Allied, which last year said it was the largest closely held mortgage broker in the U.S., asked for a court order barring the FHA suspension until the HUD lawsuit is resolved.

“The potential destruction of plaintiffs’ business outweighs any harm that would be suffered by the government before the issues can be litigated,” U.S. District Judge Melinda Harmon said in a 22-page order filed today.

Harmon initially rejected Hodge’s request for a temporary restraining order against HUD, only to reverse herself a few hours later and ask the department and Hodge to provide more information at a Nov. 8 hearing.


Hodge argued that HUD’s actions amounted to an end-run around the judicial system that would wipe out 70 percent of Allied’s business before the company had a chance to defend itself or seek judicial review.

“This is a half-baked attempt to put another mortgage broker out of business so HUD can say it is cleaning up the industry,” Bruce Alexander, a lawyer for Hodge, said at the Nov. 8 hearing.

The government says one-third of the 112,324 loans originated by Allied from 2001 through 2010 defaulted, forcing HUD to pay $834 million in insurance claims. The U.S. is seeking triple damages from Allied under the federal False Claims Act. The U.S. told Harmon that Allied and Hodge have had 10 years to explain their actions to HUD.

“HUD reasonably said enough is enough,” Assistant U.S. Attorney Jaimie Nawaday said at the hearing.

Hodge, in his suit against HUD and U.S. Housing Secretary Shaun Donovan, said his company’s “performance numbers are exemplary.”

Allied said HUD’s complaints are with the company that preceded Allied Home Mortgage Corp. While both companies are controlled by Hodge, they are separate and the later firm has no successor liability, Alexander said.

“Very little is different,” Nawaday told Harmon. “People were the problem, and the people are the same.”

The company’s case is Allied Home Mortgage Corp. v. Donovan, 4:11-cv-3864, U.S. District Court, Southern District of Texas (Houston). The government’s case is U.S. v. Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Stephen Farr, Andrew Dunn

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at

To contact the editor responsible for this story: Michael Hytha at

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