A whistleblower’s complaint alleging mortgage fraud has resulted in a $296.3 million judgment against two Texas-based mortgage companies and their chief executive.
A federal judge in Houston ordered Allied Home Mortgage Corporation, Allied Home Mortgage Capital Corporation, and their president and CEO Jim Hodge to pay the U.S. government the $296.3 million in restitution and penalties after a jury found them liable for leading the Federal Housing Authority (FHA) to insure risky, deficient home loans.
In November 2016, after a five-week trial in Houston, the jury unanimously found that Allied and Mr. Hodge violated the U.S. False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), causing more than $92 million in damages to taxpayers.
The False Claims Act authorizes the U.S. government seek treble damages. On Sept. 14, 2017, U.S. District Court for the Southern District of Texas Judge George Hanks Jr. awarded nearly $280 million in treble damages and approximately $20 million in statutory penalties for False Claims Act and FIRREA violations.
The U.S. government’s case against Allied and Mr. Hodge stems from a whistleblower complaint filed on behalf of the U.S. in U.S. District Court for the Southern District of New York in Manhattan. Federal authorities investigated the whistleblower’s claims and intervened in the case in November 2011, effectively taking over in its litigation. In September 2012, the case was transferred to the U.S. District Court in Houston.
According to whistleblower’s claims and the evidence presented at trial, the defendants abused the FHA mortgage insurance program by falsely certifying that thousands of high-risk, low-quality loans were eligible for FHA insurance. The defendants then submitted insurance claims to FHA when those deficient loans they sourced defaulted.
The U.S. alleged that Allied Capital, under the direction of Mr. Hodge, originated FHA-insured loans from more than 100 “shadow” branch offices without the authorization of the Department of Housing and Urban Development (HUD) in order to evade oversight and disguise default rates.
Allied, as a participant in HUD’s Direct Endorsement Lender program, “recklessly certified thousands of loans for FHA insurance that were in fact ineligible for insurance under HUD’s guidelines,” the U.S. Attorney’s Office for the Southern District of New York said.
The defendants also operated a dysfunctional quality control department that was not only unqualified and understaffed but also submitted falsified quality control reports to HUD auditors and falsely certified that Allied was in compliance with HUD quality-control guidelines.
Federal authorities didn’t say how much the court would award the whistleblower, but under the rules of the False Claims Act, the award could be as much as $74 million.
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Are you aware of fraud being committed against the federal government, or a state government? If so, you may be protected and rewarded for doing the right thing by reporting the fraud. If you have any questions about whether you qualify as a whistleblower, please contact an attorney at Beasley Allen for a free and confidential evaluation of your claim. There is a contact form on this website, or you may email one of the lawyers on our whistleblower litigation team: Archie Grubb, Larry Golston, Lance Gould or Andrew Brashier.
Source: U.S. Department of Justice