U.S. District Court Decides to Overrule Fraudulent Mortgagor’s Motion to Dismiss….In Part

The aftermath of America’s 2008 housing crisis is wrought with allegations against banks and financial institutions that haveengaged in risky and fraudulent lending practices. In one whistleblower case filed in 2011, a former employee of Allied Home Mortgage Capital Corporation alleged that the company engaged in the fraudulent sale of home loan products while misleading the U.S. Department of Housing and Urban Development (HUD) into believing the loans qualified for federally-backed insurance protection from the federal Housing Administration. In fact, as the case has revealed, many of Allied’s home loans did not qualify for insurance protection and involved borrowers who should not have entered into a residential mortgage agreement in the first place.

Allied Unsuccessful in its bid to Avoid Facing Liability

In its quest to recover the maximum possible compensation on behalf of taxpayers, homeowners, and its whistleblower, the U.S. government initially named one of Allied’s successor corporations, AllQuest, Allied’s CEO Jim Hodge and Allied’s compliance director Jeanne Stell as parties responsible for the fraud committed against the government in conjunction with residential mortgage loans.

In moving for dismissal, Allied insisted that it had not violated federal laws with regard to residential mortgage lending. Upon considering Allied’s motion, U.S. District Court Judge George Hanksopted to dismiss the claims against AllQuest only and has permitted the government to continue its case against Allied (now known as Americus Mortgage Corporation), Stell, and Hodge.

Synopsis of Government’s Claims Against Allied

In its allegations, the government asserts that Hodge created an environment of intimidation, punctuated by poor quality control and the routine falsification of records. It also undermines Allied’s attempt to create “shadow” branches wherein consumers were guaranteed their loans were approved by HUD when, in fact, the loans were not.

The effects of mortgage insurance fraud were felt by HUD to the tune of $834 million – a figure which represents the number of claims paid pursuant to the 35,801 Allied loans that defaulted between 2001 and 2010.

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