Allied Home Mortgage ordered to pay US $296 million for false certifications of loans insured by FHA

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Allied Home Mortgage will have to pay the Government $296 million by order of a federal judge in a major case for falsely certifying the quality of loans insured by the Federal Housing Administration over a ten year period. Last year, a federal jury found Allied liable for civil mortgage fraud and awarded the US $92,982,775. However, the presiding Judge George C. Hanks Jr. increased the award under the provisions of The False Claims Act which has a mandatory trebling provision. Under those guidelines, Hanks trebled the $92 million in damages. Hanks also imposed a penalty of $10,000 for each violation of the FCA found by the jury for a total of $12,950,000 in FCA penalties, and the maximum $1.1 million penalty for each violation of FIRREA for a total of $6.6 million in FIRREA penalties. That brings the total judgment to $296,298,325.

According to court documents, as an FHA-approved lender, Allied Capital needed approval from the Department of Housing and Urban Development for each branch office where originated FHA loans. Instead of complying with this rule, Allied Capital, with Hodge’s knowledge and approval, operated over one hundred “shadow” branch offices that originated FHA loans without HUD authorization, the government said.Allied Capital then tagged the loans from those “shadow” branches with the ID numbers of other approved branch locations, allowing those shadow branches to escape HUD oversight and enabling Allied to hide the default rates at those branches with the default rates of branches whose IDs they were using.

The government said that this “fraudulent misconduct” resulted in losses to HUD of $85,612,643 when those loans defaulted. The government also claimed that Allied operated a “dysfunctional quality control program and lied to HUD about it,” employing only a “handful” of quality control employees to review loans from as many as 600 branch offices, “many” of whom were not qualified to conduct FHA compliance reviews.

Jeffrey Newman represents whistleblowers but not in this case.