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“Allied never played by the rules.”

EDITOR’S COMMENT: The only thing I don’t like about these reports is the implication that mortgage fraud consists of isolated instances in which industry standards for underwriting were undermined or ignored. They always imply that it was some individual in the company or at the head of the company who was responsible. That isn’t true.

The whole reason Allied acted with impunity is because Wall Street wanted Allied to act this way. Every time Allied or anyone else came up with a loan that had a nominal percentage rate above market rates, the amount of money that Wall Street funded out of investor purchases of bogus mortgage bonds was decreased.

This they then reported as a trading profit” when in fact all they did was take $1 billion from investors and fund $700 million in mortgages, the rest being trading profits arising from the fact that this was in actuality a Tier 2 Yield Spread Premium unreported to either the borrower (required under law) and unreported to the investor (required by law and the documents of securitization).

The more crooked the mortgage broker, the more money the Wall Street investment Bank made in “trading profits.” In Florida, we already reported years ago that 10,000 newly licensed mortgage brokers were people recently out of prison convicted of economic crimes. They needed an army of crooks and they got it anyway they could.

The investors know these facts. But the investors are actually institutions themselves run by management that hasn’t exactly told the whole truth yet about the extent of losses in the pension fund or other managed fund. Thee management of these funds consists of individual people who are seeking another bonus, another year of employment and benefits. And of course with the revolving door on Wall Street they want to anger a prospective (or existing) employer. Eventually they are going to be required to fess up as to the amount of losses, why they didn’t do due diligence and most of all why they didn’t mitigate their losses and instead chose to let Wall Street, who had already stolen part of the money, go ahead and steal the rest too.

These managers shouldn’t be too surprised when the Banks turn on the investors and tell them it was their fault for not doing their homework and that if they wanted something other than the foreclosures (like modifications, settlements and short-sales that would have reduced the loss), they should have said so.

Feds sue mortgage broker, alleging lending fraud

APBy LARRY NEUMEISTER – Associated Press | AP – 20 hrs ago

NEW YORK (AP) — The federal government sued one of the nation’s largest privately held mortgage brokers on Tuesday, saying its decade-long fraudulent lending practices cost the government hundreds of millions of dollars and forced thousands of American homeowners to lose their homes.

The lawsuit in U.S. District Court in Manhattan sought unspecified damages and civil penalties and named as defendants Houston-based Allied Home Mortgage Corp., founder Jim Hodge and Jeanne Stell, the company’s executive vice president and director of compliance.

Joe James, a company spokesman, said he was aware of the lawsuit but had not yet seen it. He declined immediate comment.

At a news conference, U.S. Attorney Preet Bharara said Allied had carried out its fraud through its authority to originate mortgage loans insured by the U.S. Department of Housing and Urban Development, or HUD.

“The losers here were American taxpayers and the thousands of families who faced foreclosure because they were could not ultimately fulfill their obligations on mortgages that were doomed to fail,” he said.

The prosecutor said the investigation continues and “if and when we have sufficient evidence for a criminal case, we’ll bring it.”

Helen Kanovsky, HUD’s general counsel, said the agency had stopped insuring loans for Allied and was seeking to prevent Hodge from participating in any government programs again after seeing the destruction that the fraud had caused in communities across the country.

“Mortgage fraud has very real human victims,” she said.

According to the lawsuit, nearly 32 percent of the 112,324 home loans originated by Allied between Jan. 1, 2001, and the end of 2010 have defaulted, resulting in more than $834 million in insurance claims paid by HUD.

The lawsuit said the default rate climbed to “a staggering 55 percent” in 2006 and 2007, at the height of the housing boom, when the government paid $170 million to settle Allied’s failed loans. It said an additional 2,509 loans are now in default and HUD could face $363 million more in claims.

The government said Allied made substantial profits through the loans while it violated rules meant to protect HUD’s insurance fund and deceived the agency by originating loans for years out of hundreds of “shadow” branches that were not approved by HUD.

The deceitful practice was continued under Hodge’s direction even after several senior managers voiced concerns, the lawsuit said.

“Allied operated with impunity for many years due a culture of corruption created by Hodge, who eliminated the position of chief financial officer and other senior management positions, intimidated employees by spontaneous terminations and aggressive email monitoring, and silenced former employees by actual and threatened litigation against them,” the lawsuit said. “As a result, Allied was able to conceal its dysfunctional operations and maintain its profitable position in the mortgage industry.”

Allied operated 600 or more branches at once but only maintained two quality control employees in its corporate office, requiring branch managers to assume financial responsibility for their branches, the lawsuit said.

“Allied thus operated its branches like franchises, collecting revenue while the branches were profitable, then closing them without notice when they were not, leaving the branch managers liable for the branch’s financial obligations,” the lawsuit said.

The government said Allied failed to implement its internal quality control plan, “effectively allowing its shadow branches to operate independently of any scrutiny whatsoever,” the lawsuit said. “Allied utterly failed to conduct audits of its branches or review its early payment defaults as it was required to do by HUD.”

The lawsuit accused Stell of instructing branch managers how to answer questions from HUD auditors and said she acknowledged in an email that she instructed someone else to sign certifications that its branches met federal requirements because she knew they were false.

Bharara said Allied was playing a “lending industry equivalent of heads-I-win, tails-you-lose.”

He added: “Allied never played by the rules.”

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